The GBP/USD pair halted the previous day’s decline from near the mid-1.3400s and the highest level in almost two months, although it struggled to attract significant buyers during the Asian session on Friday. Spot prices are currently trading around the 1.3380-1.3385 area, up just 0.05% on the day, amid mixed signals.
The British Pound (GBP) is drawing support from a hawkish interest rate cut by the Bank of England (BoE) on Thursday, which in turn is seen as a major factor acting as a tailwind for the GBP/USD pair. As expected, the Bank of England’s Monetary Policy Committee voted 5 to 4 in favor of a 25 basis point cut to 3.75%. However, the close split in votes revealed differences within the committee, especially after this week’s inflation surprise. This in turn forced investors to reduce their expectations for more aggressive easing next year.
Aside from this, the emergence of some intraday USD selling following the release of weaker US consumer inflation numbers provides an additional boost to GBP/USD. Data published by the US Bureau of Labor Statistics (BLS) showed that the headline US Consumer Price Index (CPI) rose 2.7% from a year earlier in November, below expectations of 3.1%. Moreover, the core CPI, which excludes volatile food and energy prices, also missed expectations and rose 2.6% year-on-year last month.
The important data reaffirmed market bets on further interest rate cuts by the US Federal Reserve in 2026 and weighed on the US dollar. However, the initial market reaction turned out to be short-lived, which in turn led to some intraday selling around the GBP/USD pair. At the same time, a dovish Fed outlook keeps US dollar bulls on the defensive and helps the currency pair defend the technically important 200-day simple moving average (SMA). This in turn supports the argument for a further positive move.
Bank of England FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve “price stability,” or a constant inflation rate of 2%. Its tool for achieving this is by adjusting base lending rates. The Bank of England sets the rate at which commercial banks lend and banks lend to each other, and sets the level of interest rates in the economy as a whole. This also affects the value of the British Pound (GBP).
When inflation is above the Bank of England’s target, it responds by raising interest rates, making it more expensive for people and businesses to obtain credit. This is positive for the pound because higher interest rates make the UK a more attractive place for global investors to put their money. When inflation falls below target, it is a sign that economic growth is slowing, and the Bank of England will consider lowering interest rates to reduce the cost of credit in the hope that companies will borrow to invest in growth-generating projects – which is negative for the pound.
In extreme cases, the Bank of England can enact a policy called quantitative easing (QE). Quantitative easing is the process by which the Bank of England dramatically increases the flow of credit into a stuck financial system. Quantitative easing is a policy of last resort when lowering interest rates does not achieve the necessary result. Quantitative easing involves the Bank of England printing money to buy assets – usually AAA-rated government or corporate bonds – from banks and other financial institutions. Quantitative easing usually leads to a weakening of the British pound.
Quantitative tightening (QT) is the opposite of quantitative easing, which is triggered when the economy strengthens and inflation begins to rise. During QE, the Bank of England purchases government and corporate bonds from financial institutions to encourage them to lend; In QT, the Bank of England stops buying any more bonds, and stops reinvesting the capital owed on bonds it already holds. This is usually positive for the British pound.
