- Bank of England maintains interest rates
- Federal Reserve sends ‘higher for longer’ message to the markets
The British pound has posted losses on Thursday. In the North American session, GBP/USD is trading at 1.2287, down 0.46%. The pound fell as low as 1.2233 earlier but has pared some of the losses.
BoE takes a pause
The Bank of England ended a streak of 14 consecutive rate hikes on Thursday in a closely split decision. The Monetary Policy Committee voted 5-4 to maintain rates at 5.25%, with the four members voting to increase rates to 5.5%.
There was plenty of uncertainty ahead of the meeting, with the decision up in the air right to the wire. Early on Thursday, money markets were split 50-50 as to whether the BoE would pause or raise rates by a quarter-point, but the odds shifted to 60-40 in favor of a hike just one hour prior to the decision.
BoE policymakers had a tough decision on their hands, as raising rates would contribute to the battle against inflation but would also raise the likelihood of the UK economy tipping into a recession. In the end, a slim majority of MPC members voted to pause and we could very well see another close vote at the next meeting in the first week of November.
The BoE statement was cautiously optimistic about inflation. Policy makers noted that “CPI inflation is expected to fall significantly further in the near term” but also said that monetary policy would need to be higher and longer in order to reach the BoE’s 2% inflation target.
Fed pauses but lowers rate cut forecast
The Federal Reserve held rates at Wednesday’s, maintaining the benchmark rate at 5.5%. The Fed delivered a ‘hawkish hold’, signalling that it planned to rates higher for longer. This message sent US stock markets lower and US Treasury yields higher on Wednesday, with the US dollar showing short-lived volatility against most of the majors following the decision.
The dot plot indicated that the Fed expects to raise rates once more before the end of the year and is projecting trimming rates by 50 basis points in 2024. In June, the dot plot indicated one more hike before the year’s end and rate cuts of 100 basis points. The Fed also sharply revised its growth forecast for 2023 to 2.1%, up from 1% in June, indicating that the Fed is confident it can guide the economy to a soft landing and avoid a recession.
- GBP/USD has pushed below support levels at 1.2325 and 1.2267
- There is resistance at 1.2436 and 1.2494
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