• The Pound Sterling falls to nearly 1.2800 against the US Dollar ahead of the BoE policy meeting.
• Investors expect the BoE will cut interest rates by 25 bps to 5%.
• The US Dollar recovers despite the Fed’s dovish guidance on interest rates.

The Pound Sterling (GBP) faces a sharp selling pressure against its major peers in Thursday’s London session. The British currency weakens ahead of the Bank of England’s (BoE) interest rate decision, which will be announced at 11:00 GMT. 

According to Reuters, traders see a 66% chance that the BoE will cut its key borrowing rates by 25 basis points (bps) to 5%, with a 5-4 majority in the Monetary Policy Committee (MPC) vote. The BoE’s rate-cut decision would be the first since March 2020, as the central bank has been maintaining a restrictive monetary policy stance since December 2021 in an attempt to bring inflation down, driven by pandemic-led stimulus.

Market experts see the BoE rate-cut move as a tough call by policymakers as inflation in the service sector at 5.7% is significantly higher than the bank’s forecast of 5.1%. Though annual headline inflation has returned to the bank’s target of 2%, policymakers remain concerned over high service inflation and tightness in the United Kingdom (UK) labor market, which could lift price pressures again.