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UK inflation report reinforced the Bank of England's caution

UK inflation report reinforced the Bank of England's caution | 21 November 2024

21 November 2024, GBP/USD

UK inflation report reinforced the Bank of England's caution

Event to watch out for today:

15:30 EET. USD - Unemployment Claims

GBPUSD:

The GBP/USD pair declined to 1.2650 during Asian trading on Thursday. This decline can be attributed to the weakening of the US dollar (USD). The US Dollar Index (DXY), which measures the value of the dollar against six major peers, is holding near 106.50 at the time of writing.

However, downside risk to the US Dollar may be limited due to cautious remarks from Federal Reserve (Fed) officials. Boston Fed President Susan Collins said on Wednesday that while further interest rate cuts are necessary, policymakers should proceed cautiously to avoid moving too fast or too slow, Bloomberg reported.

Meanwhile, Fed Chair Michelle Bowman emphasized that inflation has remained elevated over the past few months and stressed the need for the Fed to take a cautious approach to rate cuts.

The Reuters poll showed that nearly 90% of economists (94 out of 106) expect a 25 bps rate cut in December, which would bring the federal funds rate down to 4.25-4.50%. Economists forecast a slower rate cut in 2025 due to the risk of higher inflation as a result of President-elect Trump's policies. The federal funds rate is forecast to be 3.50-3.75% by the end of 2025, 50 bps above last month's forecast.

GBP/USD's upside potential seems restrained due to safe-haven flows amid the escalating conflict between Russia and Ukraine. On Wednesday, Ukraine fired a salvo of British Storm Shadow cruise missiles into Russian territory, marking the latest use of Western weapons against Russian targets. This came after Ukraine used U.S. ATACMS missiles the previous day.

Trading recommendation: Trade mainly with Sell orders from the current price level.

Fund your account with cryptocurrency and you will receive up to 10% in balance on your first deposit. The additional funds will be used for trading, increasing trading volumes and helping you withstand drawdowns.

David Johnson
Analyst of «FreshForex» company
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