GBPUSD – Daily Chart
The GBPUSD is looking to secure support at the 1.2845 area and is now targeting the 1.30465 level.
The BoE cut rates after inflation fell to a three-year low in September. However, some saw it as a hawkish move as they thought a 50bps cut was possible. The bank’s Governor, Andrew Bailey, hinted that a further move is unlikely before early 2025 as rates will likely fall only “gradually from here” and that last week’s UK budget will lift inflation by just under half a percentage point.
“We need to make sure inflation stays close to target, so we can’t cut interest rates too quickly or by too much,” said Bailey. “But if the economy evolves as we expect, it’s likely that interest rates will continue to fall gradually from here,” he added.
The Financial Times said that the decision suggests the BoE is taking a cautious approach to lowering rates as it assesses the impact of the recent Labour Party budget. Donald Trump’s victory has also affected the outlook, mainly because he supported higher tariffs, which may lead to inflation.
Inflation hit 1.7% in September, falling below the BoE’s 2% target for the first time since 2021. However, the central bank expects it to increase in the coming quarters, with some of the blame landed on the budget. The BoE considers that inflation will take longer than expected to return to target, reaching 2.2% in two years’ time before falling to 1.8% by the end of the following year.
Retailer J Sainsbury warned this week that the government budget would be “inflationary”, as it complained that they would subject it to an “unexpected” and “significant” £140 million “barrage of costs.” Telecoms provider BT also called the budget a “new inflationary pressure”, as it said it would now be hit by a £100 million.
Hussain Mehdi, strategist at HSBC Asset Management, said he now expected a “fairly shallow easing cycle” that would put upward pressure on bond yields in the UK.