BOE’s Bailey Gradual Cuts Comment Brings Demand for GBP

GBPUSD dived 2 cents lower yesterday after the US elections, but the 100 daily SMA held as support again which was a bullish sign ahead of the BOE meeting today. Markets had already priced in a 25 bps rate cut by the Bank of England today, but the odds of a back-to-back cut in December declined, which what kept this pair better supported than the Euro.

The UK economy continued to weaken last month, with further signs of economic strain. The UK Construction PMI missed expectations yesterday, and the Bank of England’s key services inflation measure dropped from 5.6% to 4.9%. Given today’s 25-basis-point rate cut which sent rates to 4.75%, a further decrease in rates from the current level in December now seems unlikely.

GBP/USD Chart Daily – The 20 SMA Stopped the Retrace

The UK government’s recent budget introduced a significant £40 billion tax increase, which may add pressure to both consumers and businesses. How these tax hikes will impact the pound in 2025 remains to be seen. For now, the pound is finding support at the 100 SMA, which has held multiple times throughout 2024. However, GBP/USD buyers face resistance at the 20 SMA above, which acted as a barrier yesterday.

Bank of England Policy Meeting for November 7

• BOE cuts bank rate by 25 bps to 4.75%, as expected
• Prior 5.00%
• Bank rate vote 8-1 vs 7-2 expected (Mann dissented to keep bank rate at 5.00%)
• There has been continued progress in disinflation
• But domestic inflationary pressures are resolving more slowly
• Most of the remaining persistence in inflation may dissipate quickly
• Pay and price-setting dynamics continue to normalise following the unwinding of the global shocks
• We need to make sure inflation stays close to target
• Cannot cut rates too quickly or by too much
• The combined effects of the measures announced in Autumn Budget 2024 are provisionally expected to boost the level of GDP by around 0.75% at their peak in a year’s time
• The Budget is provisionally expected to boost CPI inflation by just under 0.5% at the peak
• There remains significant uncertainty around the outlook for the labour market
• Data are difficult to interpret and wage growth has been more elevated than usual relationships would predict
• A gradual approach to removing policy restraint remains appropriate
• Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further
• To monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting
• Full statement

GBP/USD Live Chart