HG MARKETS:

The British Pound (GBP) showed a modest rebound on Monday, edging up to around 1.3285 against the US Dollar (USD) during European trading hours. This recovery comes after hitting a fresh weekly low of 1.3260 earlier in the day, amid thin liquidity as UK markets remained closed in observance of the Early May Bank Holiday. Investor focus now shifts sharply to Thursday, when the Bank of England (BoE) is set to announce its latest interest rate decision. Analysts at Bank of America (BofA) forecast a 25 basis point (bps) rate cut, bringing the benchmark rate down to 4.25%, with an 8-1 majority on the Monetary Policy Committee (MPC). Notably, MPC member Swati Dhingra is expected to vote for a deeper 50 bps reduction, reflecting her more dovish stance.

BoE supports its outlook with several justifications, including softening energy prices, easing domestic inflation, and broader economic concerns—particularly those tied to ongoing trade tensions and President Trump’s tariff policies. The bank anticipates two more rate cuts later in the year, in addition to this week’s expected move.

Meanwhile, external factors continue to cast a shadow over the Pound. Renewed US-China trade tensions, fueled by President Trump’s latest remarks, are expected to keep UK assets under pressure. Trump indicated over the weekend that no talks with Chinese President Xi Jinping are scheduled in the near term. However, he hinted at possible tariff reductions in the future, suggesting that maintaining elevated duties would hinder trade.

Across the Atlantic, the US Dollar remains under pressure ahead of the Federal Reserve’s (Fed) policy announcement on Wednesday. Market consensus, according to the CME FedWatch tool, strongly favors no change in interest rates, keeping them at 4.25%-4.50%. However, investors will be closely watching for forward guidance from Fed Chair Jerome Powell.

Despite President Trump’s vocal support for rate cuts, the Fed remains cautious. While April’s stronger-than-expected Nonfarm Payrolls data and a less-worrisome GDP contraction have diminished recession fears, inflation expectations remain elevated. Businesses continue to pass rising input costs onto consumers, partly due to tariff-driven supply chain pressures.

Trump, however, has doubled down on his call for monetary easing, citing falling gasoline and grocery prices as signs of cooling inflation. He also clarified that he has no intention of removing Fed Chair Powell, instead signaling patience until a natural leadership change occurs. With a packed week of central bank decisions and geopolitical developments, volatility in GBP/USD is likely to remain elevated.