Bias: The outlook for GBP/XCD is range-bound, as it is near the 90-day average and within the mid-range of the last three months.
Key drivers:
- Rate gap: The Bank of England's cautious approach to rate cuts contrasts with the East Caribbean Central Bank's focus on macroeconomic stability, potentially limiting GBP upside.
- Risk/commodities: Recent declines in oil prices could impact the currencies differently; GBP may benefit from weaker import costs while XCD could face challenges as its regional economy is heavily reliant on tourism.
- Global economic dynamics: The IMF's collaboration with ECCU countries aims to stabilize the region, but growth projections for the Caribbean indicate a slowdown, which could pressure the XCD.
Range: GBP/XCD is likely to hold its ground within the established stable range, as external developments could keep volatility low.
What could change it:
- Upside risk: A stronger-than-expected UK economic performance could lead to GBP appreciation against the XCD.
- Downside risk: If tourism challenges worsen in the Caribbean, XCD could weaken, impacting GBP/XCD stability.