Pound US Dollar (GBP/USD) exchange rate muted in wake of BoE decision

Pound US Dollar (GBP/USD) exchange rate subdued following BoE interest rate decision

The Pound US Dollar (GBP/USD) exchange rate is trapped in a narrow range this morning, as markets continue to digest the latest Bank of England’s (BoE) interest rate decision.

At the time of writing, GBP/USD is trading at $1.2767, virtually unchanged from this morning’s opening rate.

Pound (GBP) rangebound following BoE decision

The Pound (GBP) is struggling to catch bids this morning following mixed commentary from BoE officials.

Following the central bank’s decision to keep interest rates at 5.25% yesterday, Bailey took a step back from the recent hawkish narrative of some of his colleagues.

Speaking to reporters on upcoming pricing pressures, Bailey commented: ‘We’ve come a long way, but we’re not there yet.’

While the BoE removed reference to potentially hiking interest rates again in the future, the bank did push back on imminent rate cuts bets, with GBP investors and analysts alike now pricing in the first rate cut come in June, rather than May as was previously forecast.

Paul Dales, Chief UK Economist, said:

‘While leaving interest rates at 5.25% for the fourth meeting in a row today, the Bank of England sent some soft signals that the next move will be a cut, but it pushed back more strongly against the idea that rates will be cut soon or far.

‘Our forecast that inflation will fall further and faster than the Bank expects suggests it will change its tune in the coming months. A rate cut in June is still possible and we think rates will end 2025 at 3.00%. That’s lower than current market pricing of 3.25-3.50%.’

US Dollar (USD) weakens on cheery market mood

The US Dollar (USD) is facing headwinds this morning, as improving risk-appetite undermines demand for the safe-haven ‘Greenbank’.

Demand for the US Dollar is also limited this morning as USD investors brace for the latest US non-farm payrolls data later this afternoon.

Payrolls are predicted to have declined, from 216,000 in December to 180,000 in January. Similarly, US unemployment is forecast to have risen, from 3.7% in December to 3.8% in January.

Should the data stoke concerns over a cooling US labour market the ‘Greenbank’ could close this week’s session on the back foot.

GBP/USD exchange rate forecast: Upcoming PMI data to drive volatility?

Looking past this afternoon’s payrolls data to next week, the Pound US Dollar exchange rate could experience some volatility as Monday see’s the publication of the latest UK and US PMI releases.

January’s finalised PMI data for the UK expected to confirm a rise in service sector growth, which may offer Sterling support at the start of the week.

Meanwhile, the most recent ISM services PMI is expected to have risen from 50.6 to 52 in January, this may help to bolster the US Dollar at the start of next week.

Sarah Ebrahem

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