Pound Sterling trades cautiously ahead of Fed-BoE policy decision
|- The Pound Sterling rebounds against the US Dollar, which corrects after Wednesday’s rally.
- The US Dollar should remain well-supported by Trump’s victory in the US presidential election.
- Investors await the Fed and the BoE’s monetary policy decisions, with markets expecting both central banks to cut interest rates by 25 bps.
The Pound Sterling (GBP) bounces to near 1.2900 against the US Dollar (USD) in Thursday’s London session after refreshing an almost 11-week low near 1.2830 on Wednesday. The GBP/USD pair rebounds as the US Dollar (USD) corrects slightly after a sharp rally. The US Dollar Index (DXY), which gauges Greenback’s value against six major currencies, drops to near 104.90 after posting a fresh four-month high around 105.40.
The US Dollar had a strong run-up on Wednesday due to a landslide victory of Republican candidate Donald Trump over his Democratic rival Kamala Harris. The appeal of the Greenback improved sharply as Trump has vowed to raise tariffs on imports by 10% universally and lower corporate taxes if he wins the presidential elections, measures that traders interpreted as a positive for the US Dollar.
Higher tariffs could push demand for domestic output, while corporate lower taxes would leave more money in the hands of corporations, which will boost investments. A scenario that will result in higher investments, spending and labor demand will escalate price pressures and allow the Federal Reserve (Fed) to take a hawkish stance on interest rates.
To get meaningful cues about the impact of Trump’s victory on the United States (US) interest rate path and the inflation outlook, investors will focus on the Fed’s policy meeting at 19:00 GMT. Officials are widely anticipated to cut interest rates by 25 basis points (bps) to the 4.50%-4.75% range.
Daily digest market movers: Pound Sterling trades sideways ahead of BoE policy meeting
- The Pound Sterling performs mixed against its major peers ahead of the Bank of England’s (BoE) monetary policy decision at 12:00 GMT. The BoE is expected to cut interest rates by 25 basis points (bps) to 4.75%, with a 7-2 vote split. The two divergent votes of the Monetary Policy Committee (MPC) are seen supporting leaving interest rates at the current levels.
- This will be the second interest rate cut by the BoE this year. The BoE started reducing interest rates in August by cutting borrowing rates by 25 bps, but opted to keep them steady in September.
- The press conference of BoE Governor Andrew Bailey after the policy decision will be interesting to watch. Bailey is expected to face a slew of questions regarding the impact on monetary policy and inflation from both Donald Trump’s victory in the US presidential election and the Autumn Forecast Statement presented last week.
- According to the National Institute of Economic and Social Research (NIESR), the growth rate of the UK economy could be more than halved to 0.4% if Trump implements tariff hikes as he promised in the election campaign.
British Pound PRICE Today
The table below shows the percentage change of the British Pound (GBP) against listed major currencies today. The British Pound was the strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.17% | -0.11% | -0.37% | -0.38% | -0.89% | -0.76% | 0.02% | |
| EUR | 0.17% | 0.06% | -0.18% | -0.21% | -0.72% | -0.57% | 0.20% | |
| GBP | 0.11% | -0.06% | -0.24% | -0.25% | -0.78% | -0.65% | 0.14% | |
| JPY | 0.37% | 0.18% | 0.24% | -0.02% | -0.53% | -0.44% | 0.40% | |
| CAD | 0.38% | 0.21% | 0.25% | 0.02% | -0.51% | -0.38% | 0.41% | |
| AUD | 0.89% | 0.72% | 0.78% | 0.53% | 0.51% | 0.13% | 0.94% | |
| NZD | 0.76% | 0.57% | 0.65% | 0.44% | 0.38% | -0.13% | 0.80% | |
| CHF | -0.02% | -0.20% | -0.14% | -0.40% | -0.41% | -0.94% | -0.80% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Technical Analysis: Pound Sterling holds 200-day EMA
The Pound Sterling rebounds after posting a fresh 11-week low near 1.2830 against the US Dollar. The GBP/USD pair recovered after discovering buying interest near the 200-day Exponential Moving Average (EMA) around 1.2860.
However, the near-term trend remains bearish as the 20-day and 50-day Exponential Moving Average (EMAs)around 1.2990 and 1.3030, respectively, are declining.
The breakdown from the lower boundary of a rising channel on the daily time frame has also added to evidence supporting more downside.
The 14-day Relative Strength Index (RSI) hovers near 40.00. A bearish momentum would resume if the RSI (14) fails to hold this level.
Looking down, the round-level support of 1.2800 will be a major cushion for Pound Sterling bulls. On the upside, the Cable will face resistance near the psychological figure of 1.3000.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.