The British pound rose against major currencies on Thursday. The British currency rose after heavy selling on Wednesday, driven by growing speculation of an interest rate cut by the Bank of England (BoE) at its next monetary policy meeting in December.
The Bank of England’s dovish outlook accelerated after the release of the UK CPI report for October, which showed that price pressures had eased at an expected pace. According to interest rate futures, the probability of the Bank of England cutting interest rates by 25 basis points to 3.75% at the December meeting rose to 85% from 80% recorded before the data release.
This month, the Bank of England’s dovish outlook also accelerated following the release of UK labor market figures for the three months to September, which showed the unemployment rate rose to 5%, the highest level since early 2021.
From now on, UK retail sales data for October and global Purchasing Managers’ Index (S&P) data for November will be published on Friday.
On the fiscal front, investors expect UK Chancellor Rachel Reeves to extend the freeze on the income tax threshold in her upcoming Autumn Budget announcement on 26 November. The possibility of Labor extending income taxes has increased after Prime Minister Keir Starmer did not rule out the possibility while speaking to reporters in the House of Commons on Wednesday.
Asked to confirm whether income tax thresholds would be frozen again, Starmer said: “The Budget is one week in today and we will set out our plans.”
The price of the British pound today
The table below shows the percentage change of the British Pound (GBP) against the major currencies listed today. The British pound was weakest against the New Zealand dollar.
| US dollars | euro | GBP | JPY | Canadian | Australian dollar | New Zealand dollar | Swiss franc | |
|---|---|---|---|---|---|---|---|---|
| US dollars | 0.11% | -0.10% | 0.41% | 0.04% | -0.14% | -0.28% | 0.17% | |
| euro | -0.11% | -0.22% | 0.31% | -0.07% | -0.25% | -0.39% | 0.06% | |
| GBP | 0.10% | 0.22% | 0.51% | 0.15% | -0.03% | -0.17% | 0.27% | |
| JPY | -0.41% | -0.31% | -0.51% | -0.38% | -0.55% | -0.72% | -0.26% | |
| Canadian | -0.04% | 0.07% | -0.15% | 0.38% | -0.17% | -0.34% | 0.13% | |
| Australian dollar | 0.14% | 0.25% | 0.03% | 0.55% | 0.17% | -0.14% | 0.30% | |
| New Zealand dollar | 0.28% | 0.39% | 0.17% | 0.72% | 0.34% | 0.14% | 0.44% | |
| Swiss franc | -0.17% | -0.06% | -0.27% | 0.26% | -0.13% | -0.30% | -0.44% |
The heat map shows the percentage changes in major currencies versus each other. The base currency is chosen from the left column, while the counter currency is chosen from the top row. For example, if you select the British pound from the left column and move along the horizontal line to the US dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
Daily summary of market drivers: The British pound is struggling against the US dollar
- The British pound is trading cautiously near a two-week low around 1.3030 against the US dollar during the European trading session on Thursday. The GBP/USD pair is under broad pressure as the US dollar (USD) trades strongly amid fading expectations that the Federal Reserve (Fed) will cut interest rates again this year.
- At press time, the US Dollar Index (DXY), which tracks the value of the dollar against six major currencies, is trading solidly near a five-month high around 100.30.
- The CME FedWatch tool shows that the likelihood of the Fed cutting interest rates by 25 basis points to 3.50%-3.75% at its December meeting has narrowed to 32.8% from 50.1% seen on Tuesday.
- The Fed’s dovish outlook was tempered after the release of Federal Open Market Committee (FOMC) minutes on Wednesday for its October monetary policy meeting, which showed that a majority of officials argued against cutting interest rates in December after cutting them by 25 basis points to 3.75%-4.00% due to weak labor market conditions. Officials warned that further expansion of monetary policy could lead to inflationary pressures.
- “Most participants indicated that further interest rate cuts could increase the risk that higher inflation would become entrenched or could be misinterpreted as failure to adhere to the 2% inflation target,” FOMC minutes showed.
- On the economic data front, investors will focus on the US non-farm payrolls data for September, which will be published at 13:30 GMT. Investors will closely monitor official employment numbers for signals about the current state of the labor market.
- The US NFP report is expected to show that the economy added 50,000 new workers, higher than the 22,000 recorded in August. The unemployment rate is expected to remain unchanged at 4.3%. Average hourly earnings, a key measure of wage growth, are expected to grow steadily by 0.3% and 3.7% on a monthly and annual basis, respectively.
- Additional signs of weakness in the US labor market would bolster the Fed’s dovish bets for the December meeting, while upbeat numbers would be a drag on them.
Technical Analysis: The British pound is attracting bids below the 20-day EMA
The pound rose near a two-week low of 1.3030 against the US dollar on Thursday. However, the overall trend of the GBP/USD pair remains bearish, as it is trading below the 200-day Exponential Moving Average (EMA), which is located near 1.3270. The pound resumed its downward journey after facing selling pressure near the August low around 1.3140, which was a key support area.
The 14-day RSI is back below the 40.00 level, indicating new downside momentum ahead.
Looking down, the April low near 1.2700 will act as a key support area. On the upside, the October 28 high around 1.3370 will act as a major barrier.
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.
