British pound rises after Fed meeting, BOE next

• Bank of England expected to pause
• Federal Reserve projects three rate cuts in 2024

The British pound continues to move higher on Thursday. In the European session, GBP/USD is trading at 1.2648, up 0.24%.

The US dollar took a tumble on Wednesday after the Federal Reserve gave the nod to rate cuts in 2024. This helped the pound recover after losing ground in the aftermath of a soft UK GDP report on Wednesday.

Bank of England expected to stand pat

The Federal Reserve created quite a buzz in the financial markets on Wednesday after the Fed signalled that it expected to trim rates in 2024. Will Bank of England Governor Andrew Bailey provide an encore at today’s meeting?

The BoE is widely expected to maintain the cash rate at 5.25% for a third straight time. There is little doubt that the BoE’s aggressive rate-tightening is over, with inflation falling and the UK economy limping along. The key question is whether Bailey will change his stance and signal that rate cuts are on the way, as Fed Chair Powell did at the Fed meeting.

Bailey has been hawkish, saying that rates will remain in restrictive territory for an extended period (“higher for longer”) and that there is more work needed to bring inflation back down to the Bank’s 2% target. Bailey has said that it’s premature to talk about rate cuts, but the markets aren’t buying it and have priced in five quarter-point rate cuts in 2024, up from three cuts just a few days ago. With a pause widely expected at today’s meeting, the rate statement and Bailey’s press conference could provide some drama and shake up the financial markets, if the BoE shifts from its hawkish stance and acknowledges that it plans to cut rates next year.

Powell’s Pivot sends US dollar lower

The Federal Reserve maintained the benchmark rate on Wednesday, as expected. What was somewhat surprising was the Fed Chair Powell’s sharp pivot, as he signalled that the Fed expected to trim rates three times in 2024. This forecast comes less than two weeks after Powell said it would be “premature” to speculate about the timing of rate cuts and that the door was still open to further hikes. The rate statement noted that inflation “has eased over the past year but remains elevated”, suggesting that inflation is moving in the right direction but the battle ain’t over yet.

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GBP/USD Technical

• GBP/USD is putting pressure on resistance at 1.2669. Above, there is resistance at 1.2720
• There is support at 1.2585 and 1.2534

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