Pound Sterling declines as BoE expects weak near-term demand
- The Pound Sterling has come under pressure after the BoE’s monetary policy announcement on Thursday.
- The BoE kept interest rates steady at 4%, with a 5-4 narrow majority vote.
- Fed dovish expectations tick high on renewed US labor market risks.
The Pound Sterling (GBP) trades lower against its major currency peers, except the New Zealand Dollar (NZD), on Friday. The British currency has come under pressure after the Bank of England (BoE) decided to hold interest rates steady at 4%, with a narrow majority vote of 5-4.
Five out of nine Monetary Policy Committee (MPC) members voted to keep interest rates at their current levels, against the expected six. For the first time, Deputy Governor Sarah Breeden voted against the majority and joined other officials – Swati Dhingra, Dave Ramsden and Alan Taylor – in backing a 25-basis-point reduction in borrowing rates.
In the monetary policy statement, the BoE warned that “weak demand could weigh on inflation in the medium term” and the “risk from greater inflation persistence has become less pronounced recently”.
Meanwhile, BoE Governor Andrew Bailey reiterated that monetary policy path remains titled to the downside. However, he clarified that officials need to see “downward path of inflation become more established before we cut rates again". "We are likely to continue to be on a gradual downward path for rates," Bailey added.
Signs of United Kingdom (UK) price pressures peaking are expected to boost expectations for one more interest rate cut by the central bank this year.
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 Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.10% | 0.10% | 0.09% | -0.06% | -0.11% | 0.23% | -0.06% | |
| EUR | 0.10% | 0.21% | 0.19% | 0.05% | -0.01% | 0.33% | 0.04% | |
| GBP | -0.10% | -0.21% | -0.04% | -0.18% | -0.21% | 0.12% | -0.17% | |
| JPY | -0.09% | -0.19% | 0.04% | -0.10% | -0.17% | 0.15% | -0.12% | |
| CAD | 0.06% | -0.05% | 0.18% | 0.10% | -0.06% | 0.26% | -0.00% | |
| AUD | 0.11% | 0.00% | 0.21% | 0.17% | 0.06% | 0.35% | 0.06% | |
| NZD | -0.23% | -0.33% | -0.12% | -0.15% | -0.26% | -0.35% | -0.29% | |
| CHF | 0.06% | -0.04% | 0.17% | 0.12% | 0.00% | -0.06% | 0.29% |
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 falls back against US Dollar
- The Pound Sterling falls slightly to near 1.3100 against the US Dollar (USD) during Friday’s European session. The GBP/USD pair faces pressure as the US Dollar rebounds after a downside move on Thursday.
- At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades marginally higher to near 99.80 after gaining temporary support near 99.60.
- On Thursday, the US Dollar declined after a report from Challenger, Gray & Christmas showed that the United States (US) adoption of Artificial Intelligence (AI) led to a significant reduction in the overall laborforce in October. According to the report, employers laid off 153,074 workers in October, the biggest reduction for the month in over two decades. The figure was 183% higher than the numbers seen in September and 175% higher than the same month the previous year.
- Renewed US labor market concerns have resulted in a slight increase in investors' expectations supporting more interest rate cuts by the Federal Reserve (Fed) this year.
- According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 25 basis points (bps) to 3.50%-3.75% in the December meeting has increased to 67% from 62% seen on Wednesday.
- Historically, the impact of the US Challenger jobs data on the US Dollar has remained limited. However, its influence has accelerated in the wake of the ongoing US federal shutdown, which has become the longest in history.
Technical Analysis: Pound Sterling sees more downside below 1.3000
The Pound Sterling ticks lower to near 1.3110 against the US Dollar on Friday. GBP/USD p holds its over six-month low around 1.3000 posted on Tuesday. The overall trend of the pair remains bearish as it trades below the 200-day Exponential Moving Average (EMA), which is around 1.3265.
The 14-day Relative Strength Index (RSI) rebounds after turning oversold below 30.00. However, the overall momentum remains bearish.
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.