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11.11.202412:44 Forex Analysis & Reviews: GBP picking up steam

The Bank of England's second rate cut in the last three meetings, down to 4.75%, did not discourage pound supporters. Hawkish rhetoric from the BoE and the talk of sterling's role as a European safe-haven currency, amidst political uncertainty in Germany and Donald Trump's looming tariff hikes, are lending a helping hand to GBP/USD. However, the instrument's future trajectory depends more on developments in the US than in Britain.

The vote by the Monetary Policy Committee saw 8 members favoring a rate cut versus 1, a shift from the previous 5-4 split, which could be perceived as a more dovish signal. But it isn't necessarily so. Uncertainty from Donald Trump's policies and potential fiscal stimulus from the Labour government keeps the Bank of England cautious. According to Andrew Bailey, the BoE needs to ensure inflation stays close to its target and avoid easing monetary policy too quickly or sharply.

Interest rate trends of Federal Reserve and Bank of England

Exchange Rates 11.11.2024 analysis

Following a dip below target, consumer prices are likely to accelerate by year-end, driven by a 10% increase in energy bills this October. Fiscal stimulus from Rachel Reeves and Trump's protectionist stance threatens further fueling inflation. The Bank of England expects inflation to settle around its 2% target only by 2027, prompting the futures market to revise its forecasts, supporting GBP/USD.

Derivatives have lowered the probability of a December rate cut from 30% to 15%. Markets anticipate that the BoE will take only two steps towards monetary easing in 2025, with a slight chance of a third. This points to a slower pace of monetary easing compared to the Federal Reserve and ECB, which is a positive sign for pound enthusiasts.

Another factor is that elevated import tariffs will place less pressure on the service-oriented UK economy than on the eurozone or China. Add to this political stability in the UK after the Labour victory and the political crisis in Germany, and it becomes clear that the British pound could easily appreciate against other global currencies, except perhaps the US dollar.

Exchange Rates 11.11.2024 analysis

Investors' strong preference for the greenback due to Trump-driven bullish sentiment remains significant. The rally in Treasury yields, fueled by expectations of rising inflation and fiscal stimulus, enhances the US's capital inflow through more attractive US-issued assets. At the same time, the Fed's readiness to pause its monetary easing cycle creates a tailwind for the USD index.

Technical outlook for GBP/USD

On the daily chart, GBP/USD shows short-term consolidation within a downtrend. A breakout below the lower border near 1.284 or a rebound from resistance at 1.295 and 1.2975 could provide grounds for short positions on the pound sterling against the US dollar.

*La presente analisi del mercato ha un carattere esclusivamente informativo e non rappresenta una guida per l`effettuazione di una transazione.

Marek Petkovich,
Analytical expert of InstaSpot
© 2007-2024
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