British pound higher as BoE holds rates

The British pound is higher on Thursday. In Tuesday’s North American session, GBP/USD is trading at 1.2731, up 0.32%.

BoE holds rates in a three-way split

The Bank of England maintained the benchmark rate at 5.25% at today’s meeting, as expected. The BoE left rates unchanged for a fourth consecutive time, further evidence that the steep rate-tightening cycle is very likely over. What was most unusual was the MPC vote, with a rare three-way split. Six members voted for the pause, two members preferred to raise rates by a quarter-point and one member voted to trim rates by a quarter-point. This points to a wide range of views at the central bank over rate policy, but Governor Bailey still commanded a comfortable majority at today’s meeting.

The BoE reiterated its ‘higher for longer’ stance, saying monetary policy would need to remain restrictive until inflation returned to the 2% target sustainably. At the same time, the BoE statement sounded more dovish than previous statements, saying that “the risks to inflation are more balanced” and removing a line about further tightening.

UK inflation has been falling sharply, although it did tick up to 4.0% in December, up from 3.9% in November. The BOE said today that it expects inflation to fall to 2% in the second quarter of this year due to lower energy prices. However, it added that this level won’t be sustainable and inflation is expected to rise back above target in the second half of the year.

In the US, today’s numbers were mixed. Unemployment claims rose to 224,000, up from an upwardly revised 215,000 a week earlier. The ISM Manufacturing PMI accelerated to 49.1 in January, up from 47.1 in December and its highest level since October 2022. Still, manufacturing remains in decline and hasn’t shown growth since October 2022, when it recorded a reading of 50.2. We’ll get a look at nonfarm payrolls on Friday, which is expected to drop to 180,000 in January, down from 216,000 in December.

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GBP/USD Technical

• GBP/USD is testing resistance at 1.2740. Next, there is resistance at 1.2772
• There is support at 1.2711 and 1.2679

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