Next week the Bank of England meets and expectations in short-term interest rate markets are that it will hike rates again. However, there is uncertainty about whether that will be a 25 or 50bps rate hike. The current expectation is around a 60/40 split in favour of just a 25 bps hike.
So, with inflation set to fall again for data in July, will the GBP see weakness into the BoE decision? Furthermore, the growing risk for the UK is that stagflation bites the UK economy as higher interest rates eat up disposable income and cramp business investment. So, watch out for potential GBP selling next Thursday on the Bank of England meeting.
Also, notice these very weak seasonals. Over the last 15 years, the GBPUSD pair has fallen nearly 75% of the time for an average drop of 2.58%. Will the BoE and, expectations of a less aggressive BoE, send the GBPUSD lower?
Major Trade Risks: The main risk here would be from a more hawkish BoE policy and a miss in the US Core PCE print on Friday, which could send the GBPUSD pair higher.
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