D day for the BOE, as central banks take centre stage

Risk sentiment is stabilizing as we move towards the end of a week that is packed with policy risks and three central bank meetings. The ECB and the BOE announce their latest policy decisions today, while the BOJ is expected to hike rates tomorrow.

UK rates are going down

The Bank of England is expected to cut rates at midday, there is a 97% chance of a 25bp cut  in rates to 3.75%, after recent weak labour market and CPI data. The UK economy has not registered growth since June, and this is starting to tilt the BOE to a more dovish stance. The Governor, Andrew Bailey, is expected to vote for a cut later today. Beyond this, the market expects just over one rate cut in 2026, however, it all depends on the vote split.

Will pragmatist Mann join calls for a cut?

At the last meeting, there was a 5-4 split to keep rates on hold. That could flip to 5-4 in favour of a cut later today. However, there is also a chance that the vote split could be more dovish, with 6 members voting for a cut, if Catherine Mann, a rate-setting pragmatist,  thinks that the deteriorating growth picture, the fall in CPI and the rise in the unemployment rate, is causing enough stress to warrant a cut.

BOE to determine where pound goes next

The pound is slightly lower as we move towards this meeting, however, it staged a decent recovery after Wednesday’s CPI sent the pound back  towards $1.33. Overall, GBP/USD is trading in a tight range, and we expect the fallout from the BOE meeting to determine where the pound goes next. If we get a more dovish vote split, then the markets may start to bring forward expectations for further rate cuts, and potentially a lower terminal rate to 3%, currently it is 3.29%. This could push down UK bond yields and weigh on the pound  in the short term.

Will rate cuts remain ‘gradual’?

Overall, after a fiscally contractive Budget, the focus is now on the BOE to boost growth. The best way to do this is for rate cuts to help rehabilitate consumer and business confidence. At its last meeting, the BOE dropped the word ‘careful’ from its guidance. If  this statement also emits the word ‘gradual’ in relation to easing, then we could see a big market impact and a recalibration of rate cut expectations for next year.

Can ECB push EUR/USD to $1/20?

Elsewhere, the ECB is expected to remain on hold today. The euro has come under some pressure vs. the USD in the lead up to this meeting and has failed to extend gains towards $1.1750. The market is expecting a hawkish tilt at the ECB, with the bank signaling that they are on hold for the long term. This could be the driver that the euro needs to push it towards $1.20 vs. the USD.

BP’s shift to an oil and gas future with new CEO

As we wait for these key events, European stocks are marginally higher. BP’s share price is down slightly after the unexpected announcement that its CEO will step down and will be replaced by Meg O’Neil, a former Exxon Mobil heavyweight, who is strong on oil and gas. O’Neil is a BP outsider and may be just what the company needs to shake up its culture and boost its share price, which continues to lag its peers in the industry. This is a muscular hire from BP and suggests a break from the past and move into a hydrocarbon-heavy future. O’Neil’s first test will be delivering the Q4 results next month. Overall, we think this move is positive for the share price, although upside is limited in the short term, as the unexpected nature of the announcement has taken the market by surprise.

US stock futures are pointing to a higher open later today as the market attempts to recover after Wednesday’s sharp AI-linked selloff.