GBP/CNY Outlook:
The GBP/CNY exchange rate is likely to decrease, trading near 90-day lows and significantly below its recent average. The pressure comes from investor concerns over upcoming Bank of England rate cuts amidst political instability.
Key drivers:
• Rate gap: The Bank of England is expected to cut rates while the People's Bank of China is focused on keeping the yuan stable, affecting the pound's performance versus the yuan.
• Risk/commodities: Oil prices are currently volatile, which can influence the yuan's strength but are less impactful on the pound in this context.
• One macro factor: Ongoing political uncertainty in the UK is adding to pressure on the pound, with eyes on the results of looming byelections.
Range:
Expect the GBP/CNY to drift within its recent 3-month range as it approaches lower levels.
What could change it:
• Upside risk: A surprise decision from the Bank of England to maintain or increase interest rates could strengthen the pound.
• Downside risk: Persistent weak retail sales or service sector performance in the UK could push GBP/CNY lower.