GBP/USD Near 12-Week High as 3.75% BoE Rate Signals Caution, Dollar Slips
GBP/USD kept rising during European trading, approaching a 12-week high as demand for sterling remained strong...
Quick overview
- GBP/USD is nearing a 12-week high as strong demand for sterling persists following a quarter-point interest rate cut by the Bank of England.
- Inflation in the UK has slowed to 3.2%, still above the BoE's target, contributing to cautious expectations for future rate cuts.
- The US dollar is weakening, with markets anticipating potential interest rate cuts by the Federal Reserve, which is supporting GBP/USD.
- Key upcoming US economic data, including Q3 GDP and labor market performance, will be crucial in determining the Fed's next moves.
GBP/USD kept rising during European trading, approaching a 12-week high as demand for sterling remained strong. The move comes after the Bank of England made a closely split decision to cut interest rates by a quarter of a percentage point to 3.75%, a vote which showed they were being careful not to make any big moves. Four of nine policymakers voted against the cut, indicating they’re still worried about wage growth and high inflation.
The UK has seen inflation slow down for two months in a row, now sitting at 3.2% after peaking at 3.8% recently. But it’s still well above the BoE’s 2% target. BoE governor Andrew Bailey has said inflation might be closer to target by the middle of 2026 – that’s helped keep expectations of further rate cuts gradual and, in turn, boosted confidence in sterling.
Dollar Weakness Keeps GBP/USD Supported
Sterling is getting a boost from a weaker US dollar. The US dollar index is drifting down to around 98 – markets think the Federal reserve might be looking to make policy easier in the coming months. The CME FedWatch tool says the odds of at least a 50-basis-point cut in interest rates by 2026 are 73.8% – the Federal Reserve is projecting something a bit more steady, though.
Fed chief Jerome Powell recently said he’d only cut rates if he saw strong evidence, but investors are instead focused on signs the labour market is slowing and that inflation is falling. All this is keeping the dollar on its back foot.
Key Data Points to Watch
Now the attention turns to key US economic data, including Q3 GDP, which is expected to show 3.2% growth, down from 3.8% in Q2. If growth slows, it will likely put even more pressure on the dollar and strengthen the case for the Fed cutting rates.
Markets will be watching:
- If the US is still growing as fast as everyone thought, or if it’s slowing down a bit.
- How the labour market is doing – that will give clues about what the Fed might do next.
- What does the Fed have to say about interest rates – are they on the same page as the markets?
GBP/USD Technical View Confirms Uptrend
GBP/USD is trading around $1.3510 on the 4-hour chart after breaking through the $1.3455 resistance zone. The price is still above the 50-day and 100-day averages, and it is still moving up in a rising channel. The RSI is around 71, which shows the price has a lot of momentum – but you can’t rule out a bit of a pullback. Support is at $1.3455 and $1.3390, and resistance is near $1.3545 and $1.3595.
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