- The Fed’s minutes failed to change expectations of an impending rate cut.
- Bank of England Governor Bailey highlighted the risks of sustained inflation growth.
- Markets are pricing in approximately 70 basis points of BoE rate cuts by the end of next year.
On Wednesday, the GBP/USD forecast remained bullish, confirming its strength as the pound held its position near a 10-week high against the dollar. Furthermore, the recent minutes from the Federal Reserve meeting have done little to change expectations that the rate hike cycle is over.
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Fed officials have stressed that they will consider raising interest rates only if progress in controlling inflation stalls.
The British pound hit a 10-week high on Tuesday against a weaker US dollar. Furthermore, Bank of England Governor Andrew Bailey reiterated that the central bank’s stance on interest rates will not change.
Moreover, Bailey expressed confidence that inflation will return to the central bank’s 2% target. However, he highlighted the risks of sustained high price growth, stating that the risks were tilting to the upside. In addition, Catherine Mann, a hawkish member of the Bank of England’s Monetary Policy Committee, advocated further tightening to ensure a return to the inflation target. Mann was in the minority when she voted to raise the bank rate by 25 basis points in November.
Money market traders believe UK interest rates have peaked. As such, markets are pricing in approximately 70 basis points of rate cuts by the end of next year. Accordingly, that implies almost three rate cuts by the end of 2024. Last week, markets estimated about 60 basis points of cuts by the end of next year.
Meanwhile, investors also paid attention to Autumn’s statement on Wednesday. Here, British Chancellor of the Exchequer Jeremy Hunt will announce changes to fiscal policy to boost the sluggish economy.
GBP/USD key events today
- UK Autumn Forecast Statement
- First jobless claims in the US
- Durable goods orders for the US core.
GBP/USD Technical Forecast: Weakening Bulls
The pound made a new high above the key level of 1.2501. However, the move higher created small-bodied candles, a sign of weakness. This weakness is also shown by the RSI, which made a bearish divergence. Although the price rose, the RSI made a lower high, indicating weaker momentum.
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However, the bias is bullish as the price is above the 30-SMA and the RSI is above 50. Bulls need to regain momentum for this bullish bias to continue. Otherwise, the bears could take a break below the 30-SMA.
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