HSBC analyzes the implications of the recent interest rate cut by the Bank of England (BoE) on the British Pound (GBP). The report notes that the Bank of England’s continued easing cycle could lead to the pound underperforming against other currencies such as the Australian dollar and the New Zealand dollar, which are expected to see interest rate increases.
The Bank of England cuts interest rates, and the British pound faces challenges
“The Bank of England cut interest rates by 25 basis points to 3.75% on December 18, the sixth cut in the current easing cycle.”
The tone of the meeting was somewhat hawkish, with the guidance noting that “provisions on further easing of policy will become a closer call.”
“With the Bank of England likely to continue cutting interest rates in 2026, sterling is likely to underperform against other G10 currencies whose official interest rates are already at neutral levels or set to rise, such as the Australian dollar and the New Zealand dollar.”
