Sterling has pushed higher and the USD has weakened following their respective central bank interest rate meetings.
The Federal Reserve decided to cut interest rates by a jumbo 0.5% last night. Expectations over the past week had been for a smaller 0.25% cut, but this changed over the past couple of days with the market sensing a larger cut was on the cards. So, although the USD weakened, the moves weren’t quite as dramatic as they could have been as it was largely priced in. Inflation appears to be less of a worry for policymakers and instead concerns are increasingly turning towards the Fed’s second goal, maximum employment. Their forecasts support these feelings, with a higher unemployment rate now projected and less persistent inflationary pressures compared to their last set of forecasts.
As expected, the Bank of England have just voted to keep interest rates on hold. However, there was only one dissenter voting for a 0.25% cut (8-0-1) versus expectations for two dissenters, which has helped support Sterling on the release. Policymakers clearly still have enough concerns over the lingering UK inflation that they’re prepared to move slowly with regards to cutting interests. Therefore, providing UK inflation continues to be stubborn and the labour market remains tight, this may provide some underlying support for Sterling over its major peers, who at this stage appear to be cutting more aggressively.
As a result, the GBP/USD rate has hit the highest levels since February 2022 having pushed up 1% today. The GBP/EUR is up around a quarter of a percent but towards the top end of where it has traded since the start of August. The EUR/USD is up a cent today and trading around a 3-week high.
