• The Pound Sterling rallies to 1.2800 ahead of BoE’s policy decision.
• February’s soft UK inflation report could allow the BoE to deliver a slightly dovish guidance.
• The US Dollar weakens as the Fed keeps forecasting three rate cuts this year.

The Pound Sterling (GBP) exhibits strength in Thursday’s London session ahead of the Bank of England’s interest rate decision, prompted by investors’ higher risk appetite. The GBP/USD pair saw a juggernaut rally as the Federal Reserve (Fed) stuck to the forecast of three rate cuts for this year, which weakened investors’ appeal for the US Dollar (USD). 

The BoE is widely anticipated to keep interest rates unchanged at 5.25% as the United Kingdom’s core Consumer Price Index (CPI), which is the preferred inflation measure of policymakers, is growing by more than twice the required rate of 2%. Investors will look for cues about when the BoE will start lowering key borrowing rates. Currently, expectations are firm for a rate cut in the August policy meeting.

BoE’s guidance on interest rates could be slightly dovish as price pressures grew at a slower pace than market expectations in February. Annual headline and core inflation softened to 3.4% and 4.5%, respectively. The UK Office for National Statistics (ONS) reported that “Food and prices at eateries were the biggest downward drags, offset by motor fuels.” 

It will be interesting to watch whether recent soft inflation figures have changed the views of Monetary Policy Committee (MPC) members Catherine Mann and Jonathan Haskel. Both of them have been voting for a further interest-rate hike in recent meetings even as the majority of the MPC decided to keep rates on hold at 5.25% in the past four policy meetings.