GBP/USD sharply lower as BoE cuts rates

The British pound has fallen sharply on Thursday. GBP/USD is trading at 1.2774 in the North American session, down 0.63% on the day. Earlier, GBP/USD fell to 1.2750, its lowest level in a month.

BoE makes historic rate cut

For those readers who like to follow the central banks (as the writer does), it has been a very interesting week. The Bank of Japan raised interest rates, the Federal Reserve maintained its benchmark rate, while the Bank of England opted to cut rates.

The BoE delivered a rate cut earlier today, the first time it has lowered rates in over four years. The quarter-point trim lowered the cash rate to an even 5%. The meeting was live as the markets remained uncertain right until decision time as to whether the Bank would hold or cut rates. Ahead of the meeting, the markets priced in a 61% probability of a quarter-point cut, which made for many surprised investors after the decision.

Interestingly, the Monetary Policy Committee voted 5-4 in favor of a cut, with four members voting to hold rates. The markets had expected a 6-3 vote, which meant that Governor Bailey barely pushed the rate cut through.

The BoE didn’t provide any hints on the future rate path, but we could see more cutting later in the year if inflation continues on its current downtrend. Headline inflation fell to 2%, the BoE’s target rate, in May and June, although services inflation remains much higher at 5.7%.

The Federal Reserve held its meeting on Wednesday and it was a virtual certainty that it would maintain rates for a seventh straight time. Fed Chair gave the markets what they wanted, as he said that a September rate cut is possible. Powell said that the Fed was more confident that inflation is heading towards the 2% target and the rate statement indicated that inflation was less of an issue than at the June meeting.
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GBP/USD Technical

•  GBP/USD has pushed below support at 1.2830 and 1.2793. Below, there is support at 1.2737
• 1.2886  and 1.2993 are the next resistance lines

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