Pound falls to nearly 1.2800 against the US dollar ahead of the BoE’s policy meeting.
The Pound Sterling (GBP) is under heavy selling pressure against its major counterparts in Thursday’s London session. The British pound falls ahead of the Bank of England’s (BoE) interest rate decision. Which will be revealed at 11:00 GMT.
According to Reuters, there is a 66% likelihood. That the BoE would lower its key borrowing rates by 25 basis points (bps) to 5%. With a 5-4 vote in the Monetary Policy Committee. The BoE The rate drop would be the first since March 2020. As the central bank has maintained a tight monetary policy stance since December 2021 in an attempt to reduce inflation, fueled by pandemic-related stimulus.
Investors predict the BoE to decrease interest rates by 25 basis points to 5%.
Market experts view the BoE’s rate-cut action as a difficult decision for policymakers. As service sector inflation at 5.7% is much higher than the bank’s prediction of 5.1%. Though annual headline inflation has reverted to the bank’s objective of 2%, officials are nevertheless concerned about rising service inflation and labor market tightness in the United Kingdom (UK), which could increase price pressures again.
BoE Chief Economist Huw Pill voiced concerns about high service inflation and strong wage growth momentum in his address before the BoE’s blackout period Policy meeting. Pill said service inflation and wage growth showed “uncomfortable strength” despite headline inflation returning to 2%, according to Reuters.
Daily Market movers: Pound Sterling falls dramatically, while the US Dollar recovers well.
The Pound Sterling fell to a three-week low of 1.2800 against the US Dollar (USD) in Thursday’s London session. The GBPUSD pair falls below the three-day consolidation zone as the US Dollar (USD) climbs. Despite the Federal Reserve’s (Fed) dovish advice on interest rates in its monetary policy decision on Wednesday.
The US dollar has recovered after a Fed-inspired sell-off. As market players had already priced in dovish signals. The US Dollar Index (DXY), which tracks the value of the greenback against six major currencies, rises to 104.20 from an intraday low of 103.86.
For the eighth consecutive meeting, the Fed maintained interest rates constant in the range of 5.25%-5.50%, acknowledging that moderate inflationary pressures in the second quarter had strengthened their confidence that rate decreases would be considered at the September meeting. The Fed conceded that risks have expanded to include both components of the dual mission.
Jerome Powell, the chairman of the Federal Reserve, commented: “If we were to see inflation moving down more or less in line with expectations, growth remains reasonably strong, and the labor market remains consistent with current conditions, then I think a rate cut could be on the table at the September meeting” , per Reuters.
US ISM Manufacturing Purchasing Managers’ Index (PMI) report for July will be released at 14:00 GMT.
During Thursday’s session, The US ISM Manufacturing Purchasing Managers’ Index (PMI) report for July will be released at 14:00 GMT. The PMI survey is expected to reveal. That manufacturing activity improved, climbing to 48.8 from the previous level of 48.5 but remains contracting. A value below 50.0 is considered a decrease in factory activity.
