GBPUSD Well Bid As BOE Keeps Interest Rates on Hold at 5.50%

The BOE kept interest rates unchanged and GBPUSD has climbed to its highest level in two years, trading slightly above 1.3300. The Bank of England (BOE) remains focused on inflation concerns and is taking a cautious approach, showing no rush to eliminate policy restrictions quickly, which is keeping the GBP supported, so we decided to go long on this pair.

BOE September 2024 Monetary Policy Decision

• BOE leaves bank rate unchanged at 5.00%, as expected
• Prior BOE bank rate was 5.00%
• Bank rate vote 8-0-1 vs 7-0-2 expected (only Dhingra dissented, wanting to cut by 25 bps)
• Need to be careful not to cut rates too fast or by too much
• Most MPC members think in the absence of material developments, a gradual approach to removing policy restraint would be warranted
• Labour market continued to loosen but that it remained tight by historical standards
• But data quality issues continued to be an area of concern i.e. LFS
• “Range of views” on inflation persistence among those who voted to keep rates unchanged
• Despite that, the current policy stance was judged to be appropriate
• Monetary policy will need to continue to remain restrictive for sufficiently long
• To monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting
• Full statement

An important note from the BOE’s decision is the continued emphasis that interest rates will remain high for an extended period of time. This suggests that the BOE is comfortable with a gradual pace in easing policy, especially given ongoing inflation risks. While traders had previously anticipated a pause in rate cuts until November, the probability of a 25 basis point cut has now fallen to around 63%.

This indicates growing uncertainty, and the rate cut is no longer fully priced in. If the UK inflation data for September mirrors the elevated figures seen in the latest report, speculation may increase that the BOE will hold off on further rate cuts, staying on the sidelines longer than previously expected.

GBP/USD Live Chart