**Pound to Dollar Forecast: GBP Pressure as Bank of England Signals Cuts Ahead**
*Original article by Gary Howes, Currency News UK*
The British Pound (GBP) faced notable downward pressure against the US Dollar (USD) after the Bank of England (BoE) strongly signaled that interest rate cuts are likely in the coming months. With the GBP/USD exchange rate coming under renewed scrutiny by traders, investors are closely monitoring central bank commentary, economic indicators, and market sentiment to assess the likely direction for the pair throughout 2024.
## Bank of England’s Latest Policy Decision
The Bank of England left the base interest rate unchanged at 5.25 percent but adjusted the language in its forward guidance, indicating that the previous need for “restrictive” policy had faded as inflation continued on its downward trajectory. The Monetary Policy Committee’s (MPC) latest minutes and statements suggest an increased willingness to lower rates in the near future, assuming economic conditions continue to ease.
Key points from the latest BoE meeting:
– The BoE voted 6-3 to maintain the status quo, with three policymakers favoring an immediate rate cut.
– The MPC removed the phrase “further tightening,” replacing it with a commitment to keep rates restrictive while inflation “remains elevated.”
– The BoE expects inflation to drop to its 2 percent target in the spring, though they forecast a modest uptick afterward due to base effects and energy price shifts.
– Governor Andrew Bailey reinforced that while it is not yet time to cut rates, the committee is now considering reductions as inflation normalizes.
Currency analysts interpreted the changes to the forward guidance and the voting split as a clear message that the BoE’s tightening cycle is over and an easing phase is approaching. Markets are now pricing in the very real possibility of the first interest rate cut as early as the summer, with further reductions over the second half of the year.
## GBP/USD Market Reaction
The immediate aftermath of the announcement saw the Pound tumble to its lowest levels against the Dollar in nearly two months. GBP/USD fell below support at 1.26, with the potential for further losses if US economic data continues to outperform UK figures or if the BoE quickens the pace toward easing.
FX strategists point to these drivers for continued pressure on GBP:
– Political uncertainty ahead of UK General Elections later in 2024.
– Persistent UK economic headwinds, including stagnant output and softening labor markets.
– Growing divergence between US Federal Reserve and BoE policy outlooks.
– Hawkish Fed guidance, underpinned by resilient US growth and inflation.
The chart technicals for GBP/USD suggest critical support levels reside at 1.2500 and then around 1.2375, while resistance is seen at 1.2750-1.2800.
## Divergence with the Federal Reserve
One of the main narratives dominating FX markets is the policy divergence between the Bank of England and the US Federal Reserve. While the BoE has moved decisively toward signaling rate cuts, the Fed has adopted a more cautious stance.
– US economic data continues to beat expectations, with strong labor market numbers and robust GDP growth.
– The Federal Reserve has maintained that it wants to see further confirmation that inflation is sustainably returning to target before initiating rate cuts.
– Markets have significantly pared expectations for multiple Fed cuts in 2024 compared with earlier in the year.
This divergence makes the US Dollar more attractive, especially as higher US yields support capital inflows. As a result, analysts expect further downside risks for cable (GBP/USD) as long as UK rate cut expectations firm and the Fed maintains its higher-for-longer rhetoric.
## The UK Economic Backdrop and Inflation
The evolving UK data pulse is a key factor underpinning the BoE’s dovish shift. Recent statistics reveal:
– UK GDP growth remains weak, flatlining toward the end of 2023 and into early 2024.
– The labor market, once a bul
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