Preview: Bank of England Dec. 2024 Decision

Ahead of the Bank of England decision, we examine the potential 'hawkish' and 'dovish' outcomes for the UK currency.

GBP/EUR is poised below the 1.2156 high in the approach to the Bank of England's final interest rate decision of 2024.

The Bank will leave interest rates unchanged, but what will it need to do to trigger further gains in the Euro? Likewise, what would send it lower?

Hawkish Outcome: Fresh Highs for GBP/EUR

Hawkish is a financial parlance used to describe a central bank that is leaning towards raising interest rates, or in the context of today's decision, a central bank that is rowing back from previously stated intentions to lower interest rates further.

Such outcomes are typically associated with rising bond yields and a rise in the currency.

Here, we would expect Pound Sterling and gilt yields to rise in tandem as markets lower expectations for the number of interest rate cuts that would likely be delivered in 2025.

The first signal the Bank would send under such an outcome is an overwhelming vote from the Monetary Policy Committee to vote to keep rates unchanged.

Only Dhingra is anticipated to vote for a cut, which would send the message that the vast majority of the MPC think inflation risks are growing again.

And so they should; UK CPI inflation rose to 2.6% y/y in November and looks likely to reach 3.0% before it hits the 2.0% target again. The pesky services inflation sub-component is at 5.0% and running above levels the Bank forecast at the November Monetary Policy Report.