The GBP/USD currency pair has experienced a decline, hovering around 1.2975 during Friday’s Asian trading session. This drop follows the Bank of England’s decision to lower its benchmark interest rate by 25 basis points to 4.75% during a meeting held on Thursday. As a result, the Pound Sterling saw increased selling pressure in the market.
This shift in GBP/USD comes after the Federal Reserve also adjusted its monetary policy, cutting its overnight borrowing rate by a quarter percentage point to a target range of 4.50% – 4.75%. This decision was anticipated widely by market participants and represents a continuation of the Fed’s easing cycle initiated with a larger half-point reduction in September. Fed officials have indicated that maintaining employment levels has become as important as managing inflation in their policy considerations.
Market expectations are leaning toward further rate cuts in December, with the probability of a quarter-point reduction rising above 68% following the Fed’s recent meeting. In contrast, the chances of the central bank pausing its rate cuts have dwindled to nearly 32%, reflecting a significant shift in market sentiment.
Meanwhile, the Bank of England’s latest rate cut occurred in the context of rising inflation forecasts, which complicates the economic landscape in the UK. This adjustment marks the second reduction in interest rates for the BoE this year, following a similar move in August. The BoE has indicated the necessity of a cautious and gradual approach to future policy changes, especially in light of recent economic developments and government budget announcements that have raised questions about the trajectory of fiscal policy.
As traders focus on upcoming economic data, attention will turn to the US Michigan Consumer Sentiment report and a scheduled speech from a Fed official later on Friday, which may further influence market movements and investor sentiment.
