Foreign exchange markets opened the week with traders closely monitoring the pound. At 10:50 GMT on Monday, EUR/GBP was quoted at 0.8734, down 0.05%, while GBP/USD stood at 1.3510, up 0.19%.
Attention is concentrated on two near-term events. First, Bank of England Governor Andrew Bailey and external member Megan Greene are scheduled to give testimony to the Treasury committee on Tuesday. Market participants will be scrutinising their remarks for any hint that they could align with a rate-cutting stance ahead of the Bank's March 19 policy decision.
ING has noted that any indication the officials are moving toward the rate-cutting camp could firm up market pricing for a March cut to 25 basis points, from the 20 basis points currently implied. That recalibration in expectations would have implications for short-term interest-rate markets and for sterling's valuation against major peers.
The second near-term risk cited by market observers is the UK by-election in Gorton and Denton, set for Thursday. ING has warned that a heavy defeat for the ruling Labour Party in that contest could revive speculation over Labour's leadership. Such a development, ING said, would be likely to put renewed downward pressure on the pound.
Looking ahead to end-of-week levels, ING suggested EUR/GBP could finish the week nearer to 0.88 if market forces and political developments push sentiment in that direction.
These two events - the BoE testimony and the Gorton and Denton by-election - are being watched for their potential to shift short-term positioning in currency and rates markets. Market participants are parsing public remarks from policymakers for guidance on the likely size of the March policy move, while political outcomes in the by-election are being viewed as a potential catalyst for changes in sterling sentiment.
Summary
The pound was trading stronger at the start of the week, with EUR/GBP at 0.8734 and GBP/USD at 1.3510 as of 10:50 GMT on Monday. Key focus points are testimony to the Treasury committee on Tuesday by BoE Governor Andrew Bailey and Megan Greene, and a by-election in Gorton and Denton on Thursday. ING highlighted that signals toward a rate-cutting stance could prompt markets to price a 25 basis-point March cut instead of the current 20 basis points, and warned a heavy Labour defeat in the by-election could pressure sterling. ING also expects EUR/GBP could move closer to 0.88 by week end.
Key points
- FX markets: GBP/USD was 1.3510 (up 0.19%) and EUR/GBP was 0.8734 (down 0.05%) at 10:50 GMT on Monday.
- Monetary policy implications: Testimony by Bailey and Greene could shift market pricing toward a 25 basis-point cut at the March 19 decision, from 20 basis points currently, according to ING.
- Political risk: The Gorton and Denton by-election could influence sterling if a heavy Labour defeat fuels leadership speculation, per ING.
Risks and uncertainties
- Policymaker signalling risk - Comments from the BoE's witnesses could change market expectations for the magnitude of the March rate cut, affecting rates and FX markets.
- Electoral outcome risk - A substantial loss for the ruling party in the Gorton and Denton by-election could re-ignite leadership speculation and weigh on sterling.
- Pricing revision risk - Markets may reprice the likelihood of the March cut from 20 basis points to 25 basis points if officials signal greater readiness to ease, with implications for short-term yields and currency positioning.