The Pound Sterling shows an upward trend during the North American session on Monday as market participants prepare to analyze the monetary policy meetings of significant central banks across the Atlantic. The anticipation of the Federal Reserve’s first rate cut in nine months, coupled with the Bank of England’s decision to maintain rates, is expected to provide support for the British currency. GBP/USD is currently at 1.3586, reflecting an increase of 0.22% after recovering from daily lows of 1.3548 as of the present moment.
GBP/USD has bounced back from a low of 1.3548 to reach 1.3600, with the probability of a 25 basis point move by the Fed now standing at 94%. UK inflation hovers around 4% as we approach the release of employment and CPI data, constraining the Bank of England’s ability to relax its policy stance. The divergence in monetary policy is anticipated to strengthen the Sterling, as the Bank of England is projected to maintain interest rates while the Federal Reserve embarks on a path of easing.
> Pound appreciates as market participants anticipate a Federal Reserve rate cut while expecting the Bank of England to maintain its current stance, leading to a reduced interest rate differential : The Federal Reserve is anticipated to lower rates by 25 basis points during a meeting commencing on Tuesday, culminating in the central bank’s decision, an update to its economic projections, and a press conference with Fed Chair Jerome Powell. Unless there is an unexpected development, money market participants have factored in a 94% probability of a 25 basis point reduction, while the likelihood of a more substantial cut stands at a mere 6%. In the context of the UK, the economic calendar is packed with significant events, including employment data scheduled for Tuesday, the Consumer Price Index release on Wednesday, and the Bank of England’s decision set for Thursday. Inflation in the UK has not shown signs of easing, approaching the 4% threshold, which necessitates additional tightening measures by the UK central bank. A decrease in the interest rate differential between the US and the UK would support additional appreciation in the GBP/USD pair.