Pound Sterling rebounds despite accelerating BoE dovish bets
- The Pound Sterling gains against its major currency peers, despite the UK economic outlook remaining uncertain.
- BoE dovish bets accelerate after soft UK inflation data.
- FOMC Minutes showed that officials are worried about upside inflation risks.
The Pound Sterling (GBP) moves higher against its major currency peers on Thursday. The British currency gains ground after an intense sell-off on Wednesday, prompted by heightened speculation of an interest rate cut by the Bank of England (BoE) at its next monetary policy meeting in December.
BoE dovish expectations accelerated after the release of the United Kingdom (UK) Consumer Price Index (CPI) report for October, which showed that price pressures cooled down at an expected pace. According to interest rate futures, the probability of the BoE cutting interest rates by 25 basis points (bps) to 3.75% in the December meeting has increased to 85% from 80% registered before the data release.
This month, BoE dovish expectations also accelerated after the release of the UK labor market figures for the three months ending September, which showed that the Unemployment Rate rose to 5%, the highest level seen since early 2021.
Going forward, the UK Retail Sales data for October and the flash S&P Global Purchasing Managers’ Index (PMI) data for November, will be published on Friday.
On the fiscal front, investors expect UK Chancellor of the Exchequer Rachel Reeves to extend the income tax threshold freeze in the upcoming Autumn Budget announcement on November 26. The odds of the Labour Party extending income taxes increased after Prime Minister Keir Starmer didn’t rule out the possibility while speaking to reporters at the House of Commons on Wednesday.
"The budget is one week today and we will lay out our plans," said Starmer when asked to confirm whether income tax thresholds would be frozen again, Reuters reported.
Pound Sterling Price Today
The table below shows the percentage change of British Pound (GBP) against listed major currencies today. British Pound was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.11% | -0.10% | 0.41% | 0.04% | -0.14% | -0.28% | 0.17% | |
| EUR | -0.11% | -0.22% | 0.31% | -0.07% | -0.25% | -0.39% | 0.06% | |
| GBP | 0.10% | 0.22% | 0.51% | 0.15% | -0.03% | -0.17% | 0.27% | |
| JPY | -0.41% | -0.31% | -0.51% | -0.38% | -0.55% | -0.72% | -0.26% | |
| CAD | -0.04% | 0.07% | -0.15% | 0.38% | -0.17% | -0.34% | 0.13% | |
| AUD | 0.14% | 0.25% | 0.03% | 0.55% | 0.17% | -0.14% | 0.30% | |
| NZD | 0.28% | 0.39% | 0.17% | 0.72% | 0.34% | 0.14% | 0.44% | |
| CHF | -0.17% | -0.06% | -0.27% | 0.26% | -0.13% | -0.30% | -0.44% |
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).
Daily digest market movers: Pound Sterling struggles against US Dollar
- The Pound Sterling trades cautiously near its two-week low around 1.3030 against the US Dollar (USD) during the European trading session on Thursday. The GBP/USD pair is broadly under pressure as the US Dollar (USD) trades firmly amid fading expectations that the Federal Reserve (Fed) will cut interest rates again this year.
- At the press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades firmly near an over five-month high around 100.30.
- The CME FedWatch tool shows that the probability of the Fed cutting interest rates by 25 basis points (bps) to 3.50%-3.75% in the December meeting has diminished to 32.8% from 50.1% seen on Tuesday.
- Fed dovish expectations have been squeezed after Wednesday's release of the Federal Open Market Committee (FOMC) minutes of the October monetary policy meeting, which showed that a majority of officials argued against reducing interest rates in December after cutting them by 25 bps to 3.75%-4.00% due to weak labor market conditions. Officials warned that further monetary policy expansion could prompt inflationary pressures.
- “Most participants noted further rate cuts could add to the risk of higher inflation becoming entrenched or could be misinterpreted as a lack of commitment to the 2% inflation objective,” FOMC minutes showed.
- On the economic data front, investors will focus on the US Nonfarm Payrolls (NFP) data for September, which will be published at 13:30 GMT. Investors will closely monitor official employment numbers to get cues about the current status of the labour market.
- The US NFP report is expected to show that the economy added 50K fresh workers, higher than the 22K registered in August. The Unemployment Rate is seen unchanged at 4.3%. Average Hourly Earnings, a key measure of wage growth, is expected to have grown steadily by 0.3% and 3.7% on a monthly and annual basis, respectively.
- Signs of further weakness in the US job market would boost Fed dovish bets for the December meeting, while upbeat numbers would be a drag for them.
Technical Analysis: Pound Sterling attracts bids below 20-day EMA
The Pound Sterling gains ground near its two-week low around 1.3030 against the US Dollar on Thursday. However, the overall trend of the GBP/USD pair remains bearish as it trades below the 200-day Exponential Moving Average (EMA), which is around 1.3270. The Cable resumed its downside journey after facing selling pressure near the August low around 1.3140, which used to be a key support zone.
The 14-day Relative Strength Index (RSI) returns below 40.00, indicating a fresh bearish momentum ahead.
Looking down, the April low near 1.2700 will act as a key support zone. On the upside, the October 28 high around 1.3370 will act as a key barrier.
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.