- The Pound Sterling gains as BoE Governor Andrew Bailey reaffirms a gradual approach to policy easing.
- Markets anticipate the BoE will maintain steady interest rates at its December 19 policy meeting.
- Meanwhile, Fed Chair Jerome Powell signals that the central bank can afford a “cautious” stance on interest rate cuts.
The Pound Sterling (GBP) surged to near 1.2750 against the US Dollar (USD) during Thursday’s North American session, buoyed by a decline in the USD following disappointing US Initial Jobless Claims data. Claims for the week ending November 29 reached 224K, exceeding both the prior release of 215K and market forecasts, signaling potential weakness in the labor market.
The higher jobless claims dragged the US Dollar Index (DXY) below the 106.00 level, renewing concerns over a slowdown in labor demand. Market participants now turn their attention to the November US Nonfarm Payrolls (NFP) report, due Friday, for further clarity on labor market conditions. Economists expect the NFP report to show an addition of 200K jobs, a notable rebound from the 12K increase in October, which was impacted by hurricane-related disruptions in certain industries. The Unemployment Rate is projected to rise to 4.2% from 4.1%.
Labor market developments will significantly shape Federal Reserve (Fed) rate policy expectations. While Fed Chair Jerome Powell delivered remarks at the New York Times DealBook Summit that were less dovish than anticipated, his comments failed to temper speculation of a December rate cut. Powell acknowledged that the economy is performing stronger than expected, with easing labor market risks and slightly elevated inflation, stating, “We can afford to be a little more cautious as we try to find neutral.”
Despite Powell’s tone, markets continue to bet on a 25-basis-point rate cut at the Fed’s December meeting. According to the CME FedWatch tool, the probability of such a cut stands at 74%, slightly up from 73% earlier this week.
Daily Market Movers: Pound Sterling Strengthens as BoE Signals Gradual Rate Cuts
- The Pound Sterling rose against major peers on Thursday, supported by expectations that the Bank of England (BoE) will adopt a measured approach to lowering borrowing rates, contrasting with the strategies of other central banks.
- Speaking at the Financial Times (FT) Global Boardroom event on Wednesday, BoE Governor Andrew Bailey emphasized the need for gradual interest rate cuts, citing progress in curbing inflation. “This sort of disinflation process is now well embedded,” Bailey remarked. However, he acknowledged that further efforts are required to bring inflation sustainably below the BoE’s 2% target, noting that price pressures have slightly rebounded after hitting the target, a scenario the BoE had anticipated.
- Meanwhile, the latest Decision Maker Panel (DMP) survey revealed that one-year forward consumer inflation expectations among UK companies rose by 0.1 percentage points to 2.7% in the quarter ending December.
- Addressing the interest rate outlook, Bailey projected four rate cuts for the coming year. While the initial reaction to his comments was bearish for the Pound Sterling, the currency rebounded as Bailey’s cautious tone provided reassurance. Although Bailey did not comment on the BoE’s December 19 monetary policy decision, market participants largely expect rates to remain unchanged at 4.75%.
- Investors are also closely monitoring remarks from BoE Monetary Policy Committee (MPC) external member Megan Greene, who is scheduled to speak at the FT Global Boardroom event at 17:00 GMT on Thursday.
Technical Analysis: Pound Sterling Rises Above 20-Day EMA
The Pound Sterling surged to near 1.2750 against the US Dollar during Thursday’s North American session, climbing above the 20-day Exponential Moving Average (EMA) at approximately 1.2715. The pair now aims to maintain levels above this key threshold. However, the overall outlook remains bearish, as the GBP/USD pair continues to trade below the 200-day EMA, currently positioned around 1.2825.
The 14-day Relative Strength Index (RSI) has recovered from oversold conditions on November 22, yet the downside bias persists.
On the downside, the GBP/USD pair is expected to find support near the upward-sloping trendline around 1.2500, which has been in place since the March 2023 low near 1.1800. On the upside, the 200-day EMA will serve as a critical resistance level.
