The British pound is showing little movement on Wednesday. In the North American session, GBP/USD is trading at 1.2440, up 0.02% on the day.
Bailey says UK debt could spiral higher
Bank of England Governor testified before the Treasury Select Committee today and warned that the UK needed to address the increase in government debt levels. Concerns are growing that the UK’s debt-to-GDP ratio, which is close to 100%,could threaten the country’s financial stability.
Finance Minister Rachel Reeves has been trying to boost the economy, but the “tax and spend” budget threatens to raise inflation, which has the BoE worried. In December, Bailey signaled that with inflation largely under control, the BoE could trim rates four times in 2025. With inflation stalling, however, that scenario appears to have been too rosy and two rate cuts seems more realistic, barring an unexpected drop in inflation.
Another headache for Bailey is US President Trump, who has managed to shake up the financial markets after barely a week in office. Trump has warned that he will levy universal tariffs, including against key trading partners. The tariffs would make US imports more expensive and boost inflation at a time when the major central banks are trying to put a lid on inflation by lowering interest rates.
The Federal Reserve makes its first rate decision of 2025 later today. It’s a virtual certainty that the Fed will stay on the sidelines and hold the current benchmark interest rate at 4.25%-4.5%. The Fed has cut rate three consecutive times, including a jumb0 half-point chop in September 2024, but the resilient US economy has stalled plans to aggressively lower rates this year. If inflation drops and the labor market continues to shine, the short easing cycle could be over and there are already voices that the next rate move will be a hike.
GBP/USD Technical
- GBP/USD tested support at 1.2403 earlier. Below, there is support at 1.2366
- 1.2453 and 1.2491 are the next resistance lines
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