BoE Holds, Buyers See Best Pound to Dollar Rate in 30 Months

September 22, 2024 - Written by Frank Davies

STORY LINK BoE Holds, Buyers See Best Pound to Dollar Rate in 30 Months

The Bank of England (BoE) Monetary Policy Committee (MPC) held interest rates at 5.00% following the latest policy meeting.

Although the decision was in line with consensus forecasts, the Pound posted strong gains on a relatively hawkish stamen and especially with traders also focussed on the aggressive 50 basis-point rate cut overnight by the Federal Reserve.

The Pound to Dollar (GBP/USD) exchange rate jumped to a fresh 30-month high just above 1.3300.

The Pound to Euro (GBP/EUR) exchange rate also jumped to 8-week highs around 1.1910 and close to 2-year highs.

According to Scotiabank; “Sterling is maintaining a steady trend appreciation against the USD, supported by a bullish alignment of trend strength oscillators across the short-, medium– and long-term charts. Key resistance sits at 1.3330 (long-term retracement) ahead of a return to the 1.35/1.40 zone.”

There was an 8-1 vote for the decision with Dhingra backing a second successive cut in rates to 4.75%.

Within the majority, there were differences of view surrounding inflation and markets expect a cut in November.

Governor Bailey remained cautiously optimistic over the inflation outlook and added; “If that continues, we should be able to reduce rates gradually over time.”

Nevertheless, he added; “But it’s vital that inflation stays low, so we need to be careful not to cut too fast or by too much.”

According to Luke Bartholomew, deputy chief economist at abrdn; “We expect the Bank to maintain a relatively cautious approach to easing, with rates being lower again in November, and continuing with a pattern of cutting rates once every other meeting.”

Rabobank commented; “Looking ahead, we see scope that GBP can continue its slow burning recovery. On the back of a more aggressive pace of Fed easing, we see scope for cable to head to 1.34 before the end of this year and for EUR/GBP to reach 0.83 on a 6-month view.”

The bank did issue a caveat; “That said, the budget may complicate this outlook. Not only may it sour investor sentiment, but a hefty round of tax hikes could impact market expectations regarding the pace of BoE easing.”

Abrdn’s Bartholomew also noted some risks surrounding fiscal policy.

Overnight, the Federal Reserve cut interest rates by 50 basis points to 5.00% and indicated that rates would be cut again before the end of 2024.

According to MUFG; “The dollar remains vulnerable to the US rates curve pricing in more cuts.

Barclays forex strategist Lefteris Farmakis, commented; "The Fed's decision was quite dovish, which bodes well with a rebound in risk and further near-term U.S. dollar weakness."

Given market expectations, he does consider that dollar losses will be limited; "The bar, however, is quite high to lean on the Fed for more dollar weakness further out. The Fed easing cycle that markets are pricing in is quite significant."

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Sterling Forecasts