GBP/USD continued its upward momentum for the third straight session on Wednesday, trading around 1.2690 during the Asian hours. The Pound Sterling (GBP) strengthened as markets now price in less than a 20% chance of another rate cut from the Bank of England (BoE) this year, following the central bank‘s comments during the BoE Monetary Policy Report Hearings on Tuesday. The BoE described interest rates as “moderately restrictive,” signaling caution in further easing.
Traders are now awaiting key UK economic data, including the October Consumer Price Index (CPI) and Retail Price Index (RPI), which could influence the BoE’s decision on whether to pursue additional rate cuts. CPI inflation is expected to rise to 2.2% year-on-year in October, up from 1.7% in September, with a 0.5% monthly increase. The RPI is projected to climb to 3.4%, from 2.7% previously.
Meanwhile, the US Dollar (USD) remained steady on Wednesday after a three-day decline, weighed down by weaker-than-expected economic data released earlier in the week. However, the downside for the Greenback may be limited as markets anticipate pro-inflationary policies under the incoming Trump administration, such as tax cuts and higher tariffs. These measures could spur inflation, potentially prompting the Federal Reserve to slow the pace of rate cuts.
Kansas City Fed President Jeffrey Schmid remarked that while inflation and employment are moving toward the Fed’s targets, rate cuts reflect the central bank’s confidence in inflation returning to its 2% target. Schmid also noted that large fiscal deficits may not directly trigger inflation, but the Fed may need to respond with rate hikes if inflationary pressures emerge.
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