The GBP/USD pair has edged lower to around 1.2975 during the Asian session on Friday, with the Pound Sterling (GBP) under pressure following the Bank of England‘s (BoE) decision to cut interest rates by 25 basis points (bps) on Thursday. This rate reduction adds to the already cautious outlook for the British economy and is seen as a response to easing inflation and economic slowdown.
Bank of England’s Rate Cut and Inflation Outlook
The BoE’s decision to lower interest rates follows a 25 bps cut in August, marking the second rate reduction this year as part of its broader policy easing cycle. The BoE’s move came after the release of the UK budget by Labour, which raised concerns about future policy moves. Governor Andrew Bailey indicated that the BoE intends to take a “gradual approach” to policy easing, emphasizing the central bank‘s careful stance in managing inflation and economic growth.
Despite the rate cut, the BoE has raised its inflation forecast, acknowledging persistent inflationary pressures. The current economic uncertainty, paired with the BoE’s more cautious approach to monetary easing, weighed on the Pound, contributing to the GBP/USD’s downward movement.
Federal Reserve Rate Cut and Hawkish Sentiment
On the other side, the Federal Reserve (Fed) also lowered its key interest rate by 25 basis points at its November meeting, bringing its benchmark target range to 4.50%-4.75%. The Fed emphasized that its decision is driven by concerns about economic growth and the labor market, with a continued focus on employment while inflation remains a priority. This aligns with the view that supporting the labor market is just as important as taming inflation.
The Fed’s dovish stance further heightened market expectations for additional rate cuts, with over 68% of market participants pricing in a quarter-point rate cut in December, according to the CME FedWatch Tool. The strong odds of a December rate cut, combined with weakening economic indicators in the US, have led to a weaker US Dollar (USD) in recent days, despite the broader risk-off mood.
US Michigan Consumer Sentiment and Fed’s Bowman Speech
As markets await fresh data, traders are looking for cues from the advanced Michigan Consumer Sentiment report due later on Friday, which will provide further insights into the US economic outlook. Alongside this, Fed Governor Michelle Bowman’s speech could offer clues on the Fed’s future stance regarding interest rates and the overall economic landscape.
Technical Outlook for GBP/USD
The GBP/USD pair remains under pressure following the BoE rate cut and softer inflation data. A failure to hold above the 1.3000 level keeps the downside bias intact for the pair. Immediate support is seen around the 1.2900 mark, which if broken, could pave the way for further downside towards the 200-day Simple Moving Average (SMA) around 1.2815.
On the flip side, 1.3000 remains a key resistance zone. A break above this level could signal a recovery for the GBP, with potential targets at 1.3070 and 1.3100. However, given the recent negative momentum and BoE’s dovish stance, the bearish outlook remains dominant.
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