The Bank of England (BoE) is expected to implement a 25-basis-point rate cut on Thursday, November 7, 2024, as inflationary pressures in the UK continue to ease. This move marks the second rate reduction in 2024, following September’s decision to hold rates steady at 5.00%. Investors are now focused on the potential consequences of the central bank’s action on the British Pound (GBP), with market analysts forecasting further downside for GBP/USD.
BoE’s Shift Toward Easing Amid Disinflation
The UK has witnessed significant disinflationary pressure, with the Consumer Price Index (CPI) falling to 1.7% year-on-year in September, a noticeable decline from the previous months. The core CPI, excluding food and energy costs, dropped to 3.2%, while services inflation remained high at 4.9%. Despite these improvements in inflation, the UK economy is still facing challenges. The Bank of England’s cautious stance on future rate cuts is partly due to persistent inflation in services and tightness in the labor market.
At its September meeting, the BoE maintained its quantitative tightening program, reducing bond holdings by GBP 100 billion over the next year. While the central bank did not signal a major shift in policy at the time, the economic data since then has led to a revised outlook, with many analysts predicting the BoE will opt for a more gradual approach to easing rates. TD Securities analysts anticipate a 7-2 vote in favor of a 25-basis-point cut, with little change to the BoE’s September guidance.
GBP/USD Under Pressure: Key Levels to Watch
The ongoing rate cut expectations put further pressure on GBP/USD, which saw a sharp decline earlier this week. On November 6, the currency pair fell to a low of 1.2833, just above its 200-day simple moving average (SMA) at 1.2811. A break below this key support level could open the door for further losses, with the July low of 1.2615 as the next key target for sellers.
On the upside, GBP/USD bulls are eyeing the 55-day SMA near 1.3119. A breakout above this level could spark a recovery toward the 2024 peak at 1.3434, last seen in late September. However, for now, the prevailing sentiment suggests that the British Pound remains vulnerable to additional downside pressure, particularly if the BoE proceeds with its anticipated rate cut.
Also read : GBP/USD Rebounds From 1.2835 Multi-Month Low, Eyes 1.2900 As BoE Rate Decision And Fed Meeting Awaited
Impact of the Fed’s Outlook on GBP/USD
As investors anticipate the BoE’s decision, all eyes are also on the Federal Reserve’s actions, which could further influence GBP/USD. The USD’s strength, coupled with expectations of a 25-basis-point rate cut by the Fed, suggests that GBP/USD could continue to struggle against the greenback in the near term.
