Pound hits a new high against the euro in May, Bank of England interest rate decision becomes the market focus

The British pound’s appreciation against the euro continues to be strong. Recently, the pound reached its highest level in five months, reflecting a reassessment of the UK economy’s outlook by the market. According to data from financial platform Jin10, market participants generally expect the Bank of England to keep interest rates unchanged at its upcoming meeting.

UK Economic Recovery Alters Market Expectations

Economist Ли Хардман from Japanese financial institution Mitsubishi UFJ pointed out that a series of recent economic data shows clear signs of recovery in the UK economy. These positive signals are reshaping investors’ expectations for a rate cut. Previously, the market anticipated that the Bank of England might initiate a new round of rate cuts early this year, but current data suggest this expectation needs to be reevaluated.

The appreciation of the pound against the euro is a direct reflection of this shift. In contrast, the economic outlook for the eurozone remains relatively uncertain, further highlighting the relative advantage of UK economic data.

Bank of England Takes a Cautious Stance

In a recent report, Хардман analyzed that, in the absence of immediate triggers for further rate cuts, the Bank of England is likely to adopt a wait-and-see approach in the early part of this year. The central bank may delay implementing new rate cuts and instead wait for more economic data to support its subsequent decisions.

This cautious stance has supported the pound’s exchange rate. Investors tend to favor currencies with relatively higher interest rates, so the Bank of England’s policy stance directly influences the pound’s movement against the euro. The stronger the market’s expectation of policy stability, the greater the potential for the pound to rise against the euro.

Future Focus

Investors should closely monitor the upcoming interest rate decision from the Bank of England and the forward guidance issued afterward. These signals will further confirm market perceptions of the Bank of England’s stance and will continue to support or suppress the future performance of the pound against the euro.