The GBP/USD pair extended its downward trend, nearing 1.2685 during Thursday’s Asian trading session, as the US Dollar (USD) surged to its highest level since November 2023, putting pressure on the British pound. Investors are closely monitoring the upcoming speech from Bank of England (BoE) Governor Andrew Bailey, scheduled for later Thursday.
The decline in GBP/USD follows data released Wednesday by the US Department of Labor Statistics, which showed that the US Consumer Price Index (CPI) increased by 2.6% year-on-year (YoY) in October, meeting market expectations. Core CPI, which excludes volatile food and energy costs, rose by 3.3% YoY, also in line with forecasts. This data has reinforced expectations that the US Federal Reserve (Fed) will proceed with a rate cut at its next meeting in December.
Ellen Zentner, chief economist at Morgan Stanley Wealth Management, noted that while the CPI results were unsurprising, the Fed is likely on track to reduce rates in December. However, she cautioned that 2024 could present challenges, particularly with the uncertainties surrounding potential tariffs and other policies from the previous administration.
Despite these expectations, some Federal Reserve officials have signaled caution regarding further rate cuts. Dallas Fed President Lorie Logan emphasized the need for a careful approach to avoid reigniting inflation, while St. Louis Fed President Alberto Musalem pointed to persistent inflation as a reason to hesitate on aggressive easing. Market participants have adjusted their expectations, now betting on a quarter-point rate cut in December, but at a slower pace through mid-2025.
Across the Atlantic, comments from Bank of England policymaker Catherine Mann suggested that the BoE’s monetary policy is having a quicker impact on inflation than anticipated. As a result, the central bank is under less pressure to make large interest rate cuts in the near term. Traders have priced in only two quarter-point rate reductions by the end of 2025, signaling that the BoE may lag behind other major central banks in its tightening cycle.
The market will be looking to Governor Bailey’s speech later Thursday for further clues on the BoE’s stance. Any less dovish comments could provide some support for the Pound, which has been under pressure from the stronger US Dollar.
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