Sterling Unable to Hold Above 1.28 Post-BoE Cut, Dovish Policy Outlook Weighs
Sterling struggled to maintain levels above 1.28 following the Bank of England’s (BoE) rate cut, with a dovish policy outlook weighing heavily. In North American afternoon trading, GBP/USD was down 0.85% at 1.2748, within a range of 1.2840-1.2746. The pair experienced volatility post-BoE, initially dropping to 1.2752, rebounding to 1.2840, before falling back to session lows.
The US dollar remained broadly firm, excluding the yen, despite a dip in US Treasury yields, as the BoE’s dovish tone further pressured sterling. Futures markets have now increased expectations for a third BoE rate cut in 2024, adding to GBP’s weakness. BoE caution appears to be a quick remedy for sterling’s recent strength.
Support for GBP/USD is seen at the post-BoE cut low of 1.2751, the daily cloud top at 1.2706, and the 200-day moving average (DMA) at 1.2646. Resistance is located at the 30-DMA of 1.2816, Thursday’s high of 1.2862, and the falling 21-DMA at 1.2880.
Sterling took a hit from the BoE’s decision to cut rates by 25 basis points on Thursday, but the cautious approach presented by Governor Andrew Bailey, along with market expectations of a similar policy trajectory to the Federal Reserve, could see GBP/USD settle within its July range of 1.2616-1.3044. Algorithmic trading reacted quickly to the news of the cut, sending sterling to a one-month low of 1.2752 as some long positions were exited. However, the pair quickly rebounded from the lows, down just 0.24% by mid-morning in New York.
The intense selling pressure eased after Bailey noted that some inflationary pressures remain elevated and it is unclear if the decline in persistence is fully accounted for.
The similarities between US and UK rate expectations should reduce market volatility surrounding central bank decisions, potentially keeping sterling anchored near the middle of its July range as markets digest further data.
