Thursday’s Bank of England (BoE) statement and minutes suggested officials are getting closer to cutting interest rates, ING’s FX Strategist Francesco Pesole notes.

August cut is a must, GBP/USD set to fall under 1.25

“The recent upside surprises in services inflation (5.7%) are attributed to volatility related to annual price hikes, not a significant trend, and while the BoE isn’t pre-committing to anything, an August rate cut is likely if the next inflation report doesn’t contain surprises.”

“Three rate cuts in 2024 starting from August remain ING’s base case, which is more dovish than the two cuts priced in by the market. An August move is only 60% priced in at the moment.”

“This makes us lean on the bearish side of sterling, although the political events in the eurozone mean that a EUR/GBP rebound may be delayed further. We expect most of Pund Sterling’s weakness to be channeled via GBP/USD, which we expect to trade back under 1.25.”