The GBP/USD pair is currently positioned in negative territory around 1.3365 during the early hours of European trading on Thursday, influenced by the rebound in the US Dollar. Nonetheless, the potential downside could be constrained following the US Federal Reserve’s decision to implement a rate cut during its December policy meeting. Market participants prepare for the upcoming release of the US weekly Initial Jobless Claims report, scheduled for later on Thursday. GBP/USD has declined to approximately 1.3365 during the early European session on Thursday. The Federal Reserve reduced the key interest rate by 25 basis points on Wednesday, aligning with market expectations. The likelihood of a Bank of England rate cut next week is currently estimated at approximately 88% by financial markets.
The markets are currently processing the widely expected rate cut announced by the Fed on Wednesday. The US central bank has lowered its key interest rate for the third consecutive time during its December meeting, while indicating that it may maintain current rates in the upcoming months. Two Federal Reserve officials opted to maintain the current interest rate, whereas Stephen Miran, appointed by Trump in September, advocated for a more significant rate reduction.
At the press conference, Fed Chair Jerome Powell emphasized that central bankers require time to assess the impact of the three reductions implemented this year on the US economy. Powell indicated that he will thoroughly assess the incoming data as the next meeting in January approaches. The Federal Reserve’s economic forecasts indicate that a rate cut is anticipated for next year, though forthcoming data may alter this outlook.
Conversely, the potential for rate reductions by the Bank of England may exert downward pressure on the Pound Sterling relative to the Greenback. The financial markets are currently reflecting an approximately 88% probability of a rate cut by the BoE next week, following indications from economic data that inflationary pressures have diminished.