Forex News

Governor Andrew Bailey took questions from reporters, offering markets a clearer sense of how the central bank was thinking. His remarks followed the widely expected decision to keep the policy rate on hold at 3.75%.

BoE Bailey press conference highlights

Disinflation is on track and is running ahead of the schedule expected in November.

Recent developments provide more confidence that inflation is on track to return to the target soon.

It is necessary to ensure that inflation falls all the way back to 2% and stays there.

The economy is not currently facing a situation in which monetary policy is being hit by big new shocks.

There should be scope for some further easing of policy.

Services inflation and wage growth need to fall further for the MPC to be confident that inflation will return to target and remain there.

The upside risk to inflation has continued to diminish.

New Bank staff analysis provides reassurance that structural changes in wage setting will not continue to add to inflation pressure.

Judgements around further rate cuts will become a closer call.

Cutting Bank Rate too quickly or by too much could risk inflation pressure persisting.

Waiting too long, on the other hand, could lead to a sharper downturn in activity.

There should be scope for some further easing in the period ahead, if the outlook evolves as expected.

For every rate cut, the question of how much further to go becomes a closer call.

We need to see more evidence that inflation is on track for a sustainable return to the target.

We have to be very focused on the underlying inflation story.

We expect inflation to move down in the next release.

Falling inflation should feed into expectations, and that should give me confidence.

I think the market curve is in a fairly reasonable place.

It does not condition the timing or scale of future policy moves.

I would not endorse 3.25% as a terminal rate, but the market curve is reasonable.

Market conditions are entirely orderly today.

This section below was published at 12:00 GMT to cover the Bank of England's policy announcements and the initial market reaction.

At its February meeting, the Bank of England (BoE) held the policy rate at 3.75%, as markets had anticipated. The vote, however, exposed a split on the Monetary Policy Committee (MPC) as four members supported a 25-basis-point cut.

BoE policy statement takeaways

Andrew Bailey, Governor of the Bank of England, speaking after the February policy decision:

All going well, there should be scope for some further reduction in Bank Rate this year.

This does not mean I expect to cut Bank Rate at any particular meeting.

I expect CPI inflation to fall to around 2% in the spring, but we need to ensure it stays there.

Bank of England policy statement and Monetary Policy Report

• Policymakers voted 5–4 to hold Bank Rate at 3.75%, with Breeden, Dhingra, Ramsden and Taylor preferring a 25 basis point cut.
• The risk of greater inflation persistence has become less pronounced, although some downside risks from weaker demand and a looser labour market remain.
• Judgements around further policy easing will become a closer call.
• Bank Rate is likely to be reduced further.

Internal debate and guidance

• Greene, Lombardelli and Pill judged that a more prolonged period of policy restriction may be needed due to inflation risks.
• Bailey and Mann said they have greater confidence that rates will be cut, but that there is not yet enough evidence to act.

Updated forecasts and market pricing

• The forecast shows CPI returning to the 2% target in Q3 2026, earlier than previously expected.
• Inflation is projected at 1.7% in one year’s time and 1.8% in two years’ time, before returning to 2.0% in three years.
• Market rates imply slightly more near-term policy loosening than previously assumed, with the Bank Rate seen at 3.3% in Q4 2026.
• GDP growth is estimated at 0.2% QoQ in Q4 2025 and 0.3% QoQ in Q1 2026, with growth seen at 0.9% in 2026.
• Wage growth of around 3.25% is judged to be consistent with the 2% inflation target.

Market reaction to BoE policy announcements

Following the BoE event, GBP/USD keeps its bearish trend well in place, navigating the area of two-week lows in the 1.3560 region. Cable’s pullback also comes in tandem with the continuation of the upbeat mood in the US Dollar.

This section below was published as a preview of the Bank of England's (BoE) interest rate decision at 07:00 GMT.

• The Bank of England is expected to keep its policy rate at 3.75%.
• UK inflation figures remain well above the BoE’s target.
• GBP/USD regains part of last week’s losses, hovering around 1.3700.

The Bank of England (BoE) will deliver its first monetary policy decision of 2026 on Thursday.

Most analysts think the ‘Old Lady’ will sit tight, keeping the base rate at 3.75% after the cut delivered back on December 18. Alongside the decision, the bank will also release the Minutes, which should shed a bit more light on how policymakers weighed the arguments around the table.

Markets are firmly priced for no move this time. However, the case for further easing hasn’t gone away, even if the BoE chooses to stay patient for now, as the UK economy struggles to gain any real traction and the fiscal backdrop continues to darken.

Inflation keeps running hot

The BoE’s December rate cut was a close-run thing. The 25 basis point move, which took the bank rate down to 3.75%, was carried by a narrow 5–4 vote. Indeed, members Breeden, Dhingra, Ramsden and Taylor all backed a cut, but it was Governor Bailey’s switch that proved decisive, underlining just how finely balanced the debate around further easing has become.

The message from the guidance was still cautiously dovish but noticeably more conditional. Policymakers stuck with the idea that rates are likely to move lower over time, describing a “gradual downward path”, while making it clear that each additional cut will be harder to justify. As policy drifts closer to neutral, the room for manoeuvre is shrinking, and the judgement calls are getting tougher.

The macro backdrop allows for further easing, but not with haste. Growth momentum has faded, with the economy expected to flatline in Q4, and inflation is projected to fall back more quickly in the near term, moving closer to the target by mid-2026. At the same time, lingering inflation bumps and a labour market that is only cooling slowly argue against flagging an aggressive cut cycle.

All told, December looks less like the start of a rush to ease and more like a careful recalibration. The Bank is still edging in an easier direction, but with rising caution as rates approach neutral and decisions become ever more dependent on incoming data.

According to the BoE’s Decision Maker Panel (DMP) published on January 8, businesses are growing a touch less punchy on pay, as firms now expect wages to rise by 3.7% over the 12 months from the final quarter of 2025, a shade lower than the pace they were expecting just a month earlier.

Additionally, companies are reducing their expectations for price increases in the upcoming year, which resulted in a 0.1 percentage point decrease to 3.6% in the three months to December.

And it’s not just wages and prices. Firms have also become slightly more cautious on hiring, with expectations for employment growth over the next year softening a little, according to the survey.

How will the BoE interest rate decision impact GBP/USD?

Many people expect the BoE will keep the reference rate at 3.75% when it makes its announcement on Thursday at 12:00 GMT.

The real focus will be on how the MPC votes, since a hold is already fully priced in. If the British Pound (GBP) moves in a way that isn't expected, it could be because it suggests a change in how policymakers are getting ready for future decisions.

Pablo Piovano, Senior Analyst at FXStreet, notes that GBP/USD has come under fresh downside pressure soon after hitting yearly peaks near 1.3870 in late January, an area last traded in September 2021.

“Once Cable clears this level, it could then attempt a move to the September 2021 high at 1.3913 (September 14) ahead of the July 2021 peak at 1.3983 (July 30)”, Piovano adds.

On the other hand, Piovano says that “the critical 200-day SMA at 1.3421 emerges as the immediate contention in case sellers regain the upper hand prior to the 2026 floor at 1.3338 (January 19).”

“Meanwhile, the Relative Strength Index (RSI) near 61 suggests further gains remain in the pipeline in the near term, while the Average Directional Index (ADX) near 30 indicates a pretty strong trend,” he concludes.

Societe Generale analysts highlight that the Yen remains weak despite significant undervaluation relative to purchasing power parity and an improved balance of payments. They suggest that concerns regarding the government's ability to maintain a downtrend in the debt-to-GDP ratio are overblown. Improved confidence in fiscal management after upcoming elections is expected to help USD/JPY drop towards the mid-140s in 2026.

Yen weakness and fiscal management outlook

"The yen has remained weak despite extreme undervaluation relative to purchasing power parity and an improvement in the country’s balance of payments."

"We think the concerns about the government’s ability to maintain the recent downtrend in the country’s debt /GDP ratio are overdone."

"Improved confidence in fiscal management after the upcoming elections in Japan should help USD/JPY drop back towards the mid-140s in 2026 and we see room for a faster fall in EUR/JPY."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Silver prices have plunged another 17%, erasing a brief recovery and reflecting extreme volatility in precious metals. The renewed drop follows a historic rout, with prices falling significantly below earlier highs. Bob Savage, Head of Markets Macro Strategy at BNY, warns that near-term volatility may persist despite longer-term support remaining intact.

Silver prices face extreme volatility

"Silver extended its selloff on Thursday, plunging as much as 17% and erasing a brief two-day rebound."

"The renewed drop dragged gold down as well and weighed on broader metals markets, with copper also falling."

"Investors are now focused on U.S. monetary policy uncertainty, with analysts warning near-term volatility may persist despite longer-term support remaining intact."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

• EUR/JPY trades slightly higher around 185.40, supported by the persistent weakness of the Japanese Yen.
• Mixed macroeconomic data from the Eurozone keep the outlook for the Euro cautious.
• Investors remain focused on the European Central Bank decision and the political backdrop in Japan.

EUR/JPY trades around 185.40 on Thursday at the time of writing, up 0.10% on the day. The cross is mainly supported by the underperformance of the Japanese Yen, amid rising political uncertainty in Japan, while the Euro shows a more mixed profile due to conflicting macroeconomic signals.

On the Eurozone side, the latest data have delivered contrasting messages. Eurozone Retail Sales fell by 0.5% in December, a much steeper decline than the 0.2% drop expected by market consensus. In addition, November figures were revised lower, with growth now seen at just 0.1% compared with the previously estimated 0.2%. These releases have renewed concerns about the strength of domestic demand and have limited the positive impact of other, more encouraging indicators.

At the same time, German Factory Orders surprised sharply to the upside in December, jumping by 7.8%, while markets had expected a 2.2% contraction. Upward revisions to November data further confirm a firmer momentum in Germany’s industrial sector. However, this improvement has not been enough to offset disappointment stemming from weak consumption, a key factor for the Eurozone growth outlook.

Investors are also cautious ahead of the European Central Bank (ECB) decision, due later in the day. The central bank is widely expected to keep interest rates unchanged, reinforcing its meeting-by-meeting approach. Market attention is mainly on President Christine Lagarde’s rhetoric, as the recent strength of the Euro has revived concerns about deflationary pressures. Any dovish signal could renew downward pressure on the single currency.

On the Japanese front, the Japanese Yen continues to show signs of vulnerability. Markets expect Japanese Prime Minister Sanae Takaichi to unveil a large spending budget after the lower house elections scheduled for February 8. The prospect of stronger fiscal stimulus and a widening budget deficit is weighing on the Japanese currency, even though solid demand at the recent 30-year Japanese Government Bond auction temporarily offered limited support to the JPY.