- The Bank of England cut rates by 25 basis points.
- Markets expect two to three BoE rate cuts in 2025.
- The Federal Reserve also cut borrowing costs by 25=bps.
The GBP/USD outlook shows a pause in yesterday’s rally as traders lock in profits. The pound rose on Thursday after the Bank of England cut borrowing costs and hinted at higher inflation ahead due to the government’s new budget.
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As expected, the Bank of England cut rates by 25 basis points on Thursday. However, traders focused on a message indicating that inflation could be higher than expected going forward. This change in tone came after the government presented a new budget with more borrowing and spending. Accordingly, markets expect two to three rate cuts in 2025, compared to earlier expectations of at least four. This boosted sterling, leading it to recover from the lows hit by Trump’s victory.
On the other hand, the Federal Reserve also cut borrowing costs by 25 basis points and struck a cautious tone on future rate cuts. The new Trump administration is coming with changes in fiscal policy that could change the outlook for inflation. In particular, Trump has proposed cuts in taxes, tariffs on imported goods and immigration laws that could increase inflation. If that’s the case, the Fed may have to pause rate cuts at some point. Accordingly, the outlook for the dollar remains bright.
However, markets still expect another rate cut in December. Ahead of this meeting, the US will release more employment and inflation data that could change this outlook. A strong labor market and higher-than-expected inflation could lead to a pause in December.
GBP/USD key events today
The pound is likely to finish the week on the low side as no key events come out of the US or UK.
GBP/USD Technical Outlook: The price is moving in the range of 1.2850-1.3000
From the technical side, GBP/USD the price recovered after finding support at the 1.2850 level. However, the price now appears to have entered a period of consolidation, with support at 1.2850 and resistance at 1.3000.
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Currently, the bulls are in the lead as the price is above the 30-SMA, with the RSI above 50. However, they failed to break through the range resistance, leading to a pullback. If the price falls below the SMA, it will continue to consolidate. On the other hand, if it breaks above, the price could start a bullish trend.
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