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Pound Sterling Weakens After Dovish Bank of England Signal
The Pound Sterling declined against both the US dollar and the euro after the Bank of England indicated a stronger willingness to cut interest rates, with markets now pricing in a possible move as early as March.
Currency traders reacted to a combination of a narrowly split policy vote, downgraded growth forecasts, and rising political uncertainty in the United Kingdom.
Latest Exchange Rates Today
Pound to Euro GBP EUR trades near 1.1485
Pound to Dollar GBP USD trades near 1.3546
Euro to Dollar EUR USD trades near 1.1794
The pound has lost roughly 0.5 percent against major peers following the policy announcement.
Bank of England Meeting Pressures the Pound
The Bank of England left its benchmark interest rate unchanged at 3.75 percent, in line with expectations. However, the 5 to 4 vote split revealed stronger internal support for rate cuts than markets had anticipated.
The central bank also revised down its economic growth outlook, reinforcing expectations that monetary easing may be required to support the slowing economy.
Market participants now see March as a realistic window for the first rate cut, with uncertainty over whether further easing could follow in June.
Growth Downgrade Strengthens Rate Cut Expectations
According to the latest Monetary Policy Report, private sector wage growth has slowed to 3.6 percent, moving closer to levels consistent with the Bank’s 2 percent inflation target.
While this supports the case for easing, policymakers remain concerned about persistent service sector inflation, which continues to run above target despite softer manufacturing activity.
The Bank acknowledged that restrictive policy is weighing on demand, though officials stressed that inflation risks remain a key consideration.
Analysts React to Dovish Shift
Market analysts noted that the Bank of England faces limited flexibility as growth weakens.
Goldman Sachs described the policy stance as constrained, highlighting the difficulty of balancing inflation risks against slowing economic momentum.
The Bank also reduced its 2026 growth forecast to 0.8 percent, a move widely interpreted as a signal that additional rate cuts may be needed later in the year.
UK Political Uncertainty Adds Pressure
Political developments in the UK are further weighing on Sterling sentiment. Markets are increasingly pricing in uncertainty surrounding the government, with recent tensions within the ruling Labour Party drawing investor attention.
ING noted that heightened political risk tends to weaken a currency, particularly when combined with softer economic data and dovish central bank guidance.
Upcoming by elections and local elections are expected to keep political uncertainty elevated in the coming months.
Pound Outlook Remains Fragile
The combination of rising expectations for a March rate cut, downgraded growth forecasts, and political uncertainty has left the pound on the defensive.
GBP EUR has moved closer to 0.87, while GBP USD continues to trade near the 1.35 level as investors await clearer signals from the Bank of England and upcoming economic data.
Unless inflation shows renewed strength, market sentiment suggests the pound may remain under pressure in the near term.
