GBP/USD reached a 30-month high on Wednesday after the US Federal Reserve cut interest rates by 50 bps, marking its first rate cut in over four years. The UK’s Bank of England is set to announce its rate decision on Thursday, but no changes are expected after previous rate cuts earlier this summer. As the focus shifts to the US economic health, investors are eagerly waiting for the BoE’s decision on interest rates on Thursday, which is expected to remain steady at 5.0% in a seven-to-two vote.
The Fed’s Summary of Economic Projections showed a downward revision in the dot plot, with the median policy expectations now predicting a Fed Funds rate of 4.4% by year-end 2024 and 3.4% by year-end 2025. This is down from the previous forecasts of 5.1% and 4.1% respectively. Fed policymakers also revised US GDP growth to 2.0% through 2024 and the Unemployment Rate to settle around 4.4% by the end of 2024. Fed Chair Jerome Powell emphasized a wait-and-see approach to further rate cuts during the press conference, helping to maintain market balance with a 65% chance of no further action at the next rate call in November.
Despite hitting a high near 1.3300, GBP/USD quickly stabilized around the 1.3200 handle. The pair remains bullish, trading above the 50-day Exponential Moving Average (EMA) near 1.3000. The Pound Sterling (GBP) is the oldest currency in the world, with key trading pairs like GBP/USD, GBP/JPY, and EUR/GBP. The value of the GBP is influenced primarily by the Bank of England’s monetary policy decisions, which aim for price stability through adjustments in interest rates. Economic indicators like GDP, PMIs, and employment data can impact the GBP, with a strong economy attracting foreign investment and potentially leading to higher interest rates, strengthening the GBP.
The Trade Balance is another significant data release that affects the Pound Sterling. It measures the difference between a country’s exports and imports over a period, with a positive balance strengthening the currency. Strong exports lead to increased demand for the currency, while a negative balance can weaken the currency. Overall, the GBP is influenced by various economic factors and monetary policy decisions, with traders closely watching for any developments from the Bank of England and economic data releases to assess the future direction of the Pound Sterling.
