Pound Sterling Extends Recovery Ahead of BoE Policy Meeting

As the Bank of England’s policy meeting looms, Sterling extends recovery, demonstrating resilience and positive momentum

Highlights:

• Pound Sterling extends recovery further ahead of the BoE’s monetary policy decision.
• The BoE is expected to keep interest rates steady at 5.25% due to a weakening economy and falling inflation.
• Discussion about interest-rate cuts could spoil the Pound Sterling’s recovery.

read more: BOE Rate Decision Impact: Three Possible Outcomes and Their Impact on GBP/USD

Sterling Extends Recovery Before BoE Meeting

The Pound Sterling extends recovery continuing its upward trajectory on Thursday, reaching 1.2650 against the US Dollar during the European morning session. This surge was fueled by the unexpectedly dovish guidance from the US Federal Reserve (Fed). The Pound is poised for further momentum, with the upcoming Bank of England (BoE) policy meeting at 12:00 GMT drawing significant attention.

Anticipation looms over the BoE’s decision regarding interest rates, with expectations leaning towards a steady hold at 5.25% for the third consecutive meeting. The prevailing concerns of a deepening recession and easing inflation contribute to this consensus. However, there is speculation that policymakers might underscore the importance of maintaining a “higher for longer” approach to interest rates to ensure stability in prices.

The ongoing economic downturn in the UK poses challenges to Prime Minister Rishi Sunak’s commitment to stimulating growth. The repercussions of elevated interest rates are taking a toll on the UK economy, jeopardizing the prospect of realizing Sunak’s growth ambitions. This, in turn, could cast a shadow on the outlook for GBP/USD in the near future.

Market Movers Daily Digest: Pound Sterling Gains Amid Optimistic Sentiment

• The Pound Sterling (GBP) continued to ride the wave of a positive market sentiment, maintaining its gains on the back of the Federal Reserve’s decision to keep interest rates unchanged for the third consecutive time. The dovish guidance provided by Fed Chair Jerome Powell further bolstered the Pound’s position.
• Investor focus now shifts to the upcoming Bank of England (BoE) interest rate decision, scheduled for announcement at 12:00 GMT. While expectations lean towards a steady interest rate at 5.25%, there is anticipation that BoE members may advocate for a “higher for longer” stance to ensure price stability.
• Several factors support the case for maintaining the status quo by the BoE, including easing price pressures, diminishing pay growth, and a contracting economy. In the three months leading to October, earnings excluding bonuses grew at a slower pace of 7.3%, signaling a slowdown despite remaining relatively high. Additionally, UK headline inflation dipped to 4.6% in October, and monthly Gross Domestic Product (GDP) contracted by 0.3%, attributed to adverse weather conditions.
• Concerns over a potential recession in the UK economy have heightened with a significant fall in Manufacturing and Industrial Production. BoE policymakers are expected to closely align with the cautious approach of the Federal Reserve, contemplating interest rate cuts in 2024 as a response to the substantial decline in economic activity.
• UK Chancellor Jeremy Hunt acknowledged the inevitable impact of higher interest rates on the economy, emphasizing the challenging landscape. The market sentiment remains favorable towards risk-perceived assets, buoyed by Powell’s unexpectedly dovish stance during Wednesday’s monetary policy guidance. The Federal Reserve’s projection of a “soft landing” scenario for the economy, taming inflation without economic collapse or higher jobless rates, adds to the optimism in the market. Investors keenly await further developments, with a keen eye on both central bank decisions shaping the trajectory of Pound Sterling in the coming sessions.

Technical Analysis:

The Pound Sterling has held onto its recent gains, trading near a nine-day high of approximately 1.2650 against the US Dollar. This follows a notable rebound from the psychological support level of 1.2500, indicating resilience in the GBP/USD pair ahead of the imminent interest rate decision by the Bank of England (BoE).Looking ahead, sustained momentum could propel the Pound Sterling further, with the GBP/USD pair eyeing a re-test of November’s high at 1.2733, coinciding with the 61.8% Fibonacci retracement level. The 20-day Exponential Moving Average (EMA) at 1.2557 is poised to act as a key support, reinforcing the bullish stance for Pound Sterling.

Conclusion

the Pound Sterling has strengthened against the US Dollar, propelled by the dovish tone from the US Federal Reserve. The upcoming Bank of England meeting introduces anticipation, with expectations leaning towards a steady interest rate despite economic challenges. The Pound’s resilience and positive market sentiment indicate ongoing confidence, but the delicate balance between stimulating growth and managing inflation remains a focal point for investors. The trajectory of the Pound Sterling will be shaped by the outcomes of central bank decisions and their strategies in the coming sessions.