- The GBP/USD pair registers losses and is trading at 1.2285, following the Bank of England’s decision to keep rates unchanged amid slowing inflation in the United Kingdom.
- US economic data shows a mixed picture, with lower-than-expected initial jobless claims and a plunge in the Philadelphia Fed manufacturing index.
- Given the strength of the US economy and rate differences, the GBP/USD pair is likely to continue its bearish trajectory soon.
The British pound (GBP) registers solid losses against the US dollar (USD) following the Bank of England’s (BoE) decision to keep rates unchanged in a split 5-4 vote, with BoE Governor Bailey casting the deciding vote. The slowdown in inflation in the United Kingdom, reported on Wednesday, was the main reason for the BoE’s decision. The pair GBP/USD is trading at 1.2295 after reaching a daily high of 1.2331.
GBP/USD falls to 1.2300 as BoE holds rates and US economic data paints a mixed picture
Previously, the BoE had decided to keep rates unchanged at 5.25% due to slowing inflation, easing labor market and deteriorating business sentiment. The BOE added that rates would remain high for an extended period and that “further tightening would be necessary if there is evidence of more persistent inflationary pressures.”
Bailey and company updated their GDP forecasts, with the economy expected to grow 0.1% in the third quarter, down from the 0.4% estimate in August, underscoring that growth in the second half of the year would be weaker. . The BoE would also modify its quantitative tightening program from 80 billion to 100 billion pounds.
The BoE’s decision hurt GBP/USD’s bullish outlook, as the pair was already under downward pressure after the Federal Reserve decided to keep rates unchanged but revised interest rates upwards for 2024. In the Summary of Economic Projections (SEP), Powell and his colleagues updated the dot charts, with most Fed officials expecting to keep rates above the 5% threshold in the coming year.
In terms of data, the US economic docket included last week’s initial jobless claims, which rose by 201,000, below estimates of 225,000, and suggest a strong labor market. Other data revealed that the Philadelphia Fed manufacturing index for September fell -13.5, well below forecasts for a -0.5 contraction. US existing home sales data was worse than expected, at -0.7% mom, below forecasts for a 1.5% expansion.
Against this backdrop, GBP/USD is likely to maintain its bearish trend as the US economy remains strong. Furthermore, the difference in rates between the US and the UK suggests that further falls are expected.
GBP/USD Price Analysis: Technical Outlook
On the daily chart, the pair is preparing to extend its losses. Still, GBP/USD must manage a daily close below the April 3 daily low at 1.2274 to exacerbate the test of the March 15 daily low at 1.2010 before testing the yearly lows at 1.1802. In the short term, the hourly chart of GBP/USD shows the pair recovering from daily lows reached at 1.2237, with traders eyeing a retest of 1.2300. With the interest rate differential between the UK and the US favoring the latter, some selling pressure is expected on the figure. A daily close above 1.2300 could pave the way towards 1.2400.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
