UK Markets Await Central Bank Decisions Amid Holiday Lull

On May 5, the UK stock market was closed due to a holiday. On Monday, the pound rose against the weakening US dollar. With the UK public holiday causing a lull in market news, all eyes are on the upcoming Bank of England's monetary policy decision later this week. There are no major domestic events before Thursday's Bank of England meeting.

The market generally expects the Bank of England to cut interest rates by another 25 basis points to 4.25%. However, the wording of its policy statement is highly anticipated. Some investors believe that as Trump's tariffs impact global growth, the central bank needs to accelerate the pace of gradual interest rate cuts. Samar Hamoud, a foreign exchange strategist at the Commonwealth Bank of Australia (CBA), pointed out that they expect the Bank of England to downgrade its GDP forecast due to the trade war. But given that inflation is still high, it may maintain a gradual interest rate cut path. She warned that if the statement removes the word "gradual", the market may price in more interest rate cut expectations, pushing the pound - dollar exchange rate down to the 1.3127 support level. Currently, the market expects that in addition to the Thursday action, the Bank of England will cut interest rates at least two more times this year (a total of 50 basis points), and the probability of a third rate cut is high.

The Federal Reserve will also announce its interest rate decision this week. After the strong March non - farm payrolls data, the market generally expects it to hold steady on Wednesday.