- The Bank of England has lowered interest rates to 4% with a narrow 5-4 vote, indicating a careful approach to easing.
- The BOE’s hawkish tone pushed GBP/USD above 1.3400 for the first time in a week.
- US unemployment has climbed to its highest level since 2021, contributing to dollar weakness.
During the North American trading session, GBP/USD initially dipped below the eight-day high of 1.3436 after the Bank of England’s (BOE) decision to cut rates with a close voting split. Despite this, it eventually reached 1.3436 as concerns about inflation persisted, leading to a surge in GBP/USD values. Additionally, rising employment claims in the U.S. are adding pressure on the dollar. The currency pair was up by 0.48% at 1.3410.
Sterling Rally Nears 1.3436 as BOE Cautions on Inflation
Interestingly, the four BOE Monetary Policy Committee (MPC) members remained unchanged. Taylor advocated for a more significant 50 basis points rate cut, ultimately resulting in the interest rate being set at 4%. The BOE’s policy statement indicated a “gradual and prudent approach” to potential further rate decreases but acknowledged that current reductions have led to tighter monetary policy.
This decision puts added pressure on Prime Minister Rachel Reeves, who anticipates raising taxes in her budget announcements through the end of 2025 to meet fiscal objectives.
Characterized as a “hawkish cut,” GBP/USD surged past the 1.3400 threshold, reaching a weekly peak of 1.3436 before retreating to around 1.34.
On the other side of the Atlantic, jobless claims for the week ending August 2 rose to 228,000, surpassing estimates of 221,000 and a previous 218,000. However, the more striking statistic was the continuous claims for the week ending July 26, which hit 1.97 million, marking the highest level since November 2021.
Despite the concerning data, futures markets suggest traders anticipate at least 58 basis points of easing by year-end.
Information has recently shifted with reports that the Trump administration may consider Christopher Waller for the next Fed chair position.
The US Dollar Index (DXY), which measures the dollar’s performance against a basket of other currencies, rose by 0.15% to 98.34. This news caused GBP/USD to fall from approximately 1.3430 to 1.3410.
Meanwhile, Atlanta Federal Reserve President Rafael Bostic has reiterated his belief that a rate cut would be suitable this year, although he noted that further data will be essential before the next meeting.
GBP/USD Price Analysis: Technical Perspective
After overcoming the 1.3400 level, GBP/USD now appears neutral but somewhat distorted, with significant resistance at the 50-day SMA around 1.3500. Should buyers push higher, the next target could be 1.3600.
Conversely, daily closes below 1.3400 may limit GBP/USD gains and keep the pair range-bound between the 100-day SMA at 1.3351 and 1.3400. If sellers break below this range, a decline below 1.33 could be expected.
