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Expectations that the Bank of England will cut rates less than the Fed

Expectations that the Bank of England will cut rates less than the Fed | 13 September 2024

13 September 2024, GBP/USD

Expectations that the Bank of England will cut rates less than the Fed

GBPUSD:

The GBP/USD pair is gaining positive momentum for the second consecutive day and recovering from more than three-week lows around the psychological 1.3000 mark reached on Wednesday. The momentum is lifting spot prices to the mid-1.3100s, or a fresh one-week high during the Asian session, and it is supported by the supply tone around the US Dollar (USD).

The U.S. Dollar Index (DXY), which tracks the dollar against a basket of currencies, slipped to a more than one-week low amid rising bets on a larger interest rate cut by the Federal Reserve (Fed), helped by a softer U.S. Producer Price Index (PPI) report on Thursday. Dovish Fed expectations are keeping US Treasury yields near 2024 lows, which, along with the upbeat market sentiment, is undermining the safe-haven Dollar and acting as a tailwind for GBP/USD.

Bulls, meanwhile, seem unaffected by bets on further interest rate cuts by the Bank of England (BoE), especially after data released this week pointed to slowing UK wage growth and a flat GDP print in July for the second consecutive month. Markets, however, believe that the Bank of England will ease policy less than the Fed over the next year. This, in turn, would favor the British Pound (GBP) and prove to be another factor providing additional support to the GBP/USD pair.

However, it remains to be seen whether the bulls will be able to capitalize on this move or refrain from aggressive bets ahead of key central bank events next week. The Fed will announce its decision following its two-day meeting next Wednesday. This will be followed by the crucial Bank of England meeting on Thursday, which will play a key role in providing meaningful impetus to the GBP/USD pair and determining the next stage of directional movement.

Trading recommendation: Watch the level of 1.3150, if the level is fixed above consider Buy positions, if it rebounds consider Sell positions.

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David Johnson
Analyst of «FreshForex» company
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