Pound rallies as BoE keeps rates on hold

British pound gains against USD after BoE votes to keep rates on hold

The British pound made modest gains against the U.S. dollar following the Bank of England's decision to keep rates steady on Thursday, rising close to 0.4% to trade at $1.22. The central bank, in line with expectations, chose to keep interest rates unchanged for the second time in November.

The Bank of England (BoE) also emphasized its commitment to maintaining high-interest rates for an extended period (“higher for longer”) and indicated that another rate hike could be considered in response to persistent inflationary pressures. BoE Governor Andrew Bailey emphasized that any considerations of rate cuts are premature.

"The Monetary Policy Committee's latest projections indicate that monetary policy is likely to need to be restrictive for an extended period of time," the BoE said. "Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressure."

"We need to see inflation continuing to fall all the way to our 2% target," Bailey said in a statement.

The economic outlook for the UK continues to pose significant challenges for the central bank. Inflation, which remained stubbornly high at 6.7% in September, remains more than three times the central bank's target of 2%. The BoE’s latest projections suggest that the economy will stall in the third quarter, with minimal growth of 0.1% expected in the fourth quarter. The forecast for 2024 shows zero growth, and a marginal expansion of just 0.25% is anticipated for 2025.

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UK interest rates: Analysts say focus shifts to timeline for rate cuts

Markets.com Chief Markets Analyst Neil Wilson offered a preview of the BoE’s interest rate decision in his morning notes on Thursday, saying that the UK’s central bank will likely focus on how long to keep rates high rather than to elevate them further:

“Bank of England is expected to hold today. […] Three hawks who voted for rates to rise last time to 5.5% may still vote this way – and it would be likely that the MPC would reiterate forward guidance suggesting it could raise rates again if required. Inflation held firm at 6.7% in September, but there are clear signs of labour market weakness and softening growth outlook which will stay in the hand of the MPC. The unemployment rate rose to 4.2% between June and August, up from 4% in the March-to-May quarter, whilst signs of a slowdown in the economy seem to be building. It’s now a case of how long the BoE keeps rates at these levels rather than how high do they go.”

Samuel Zief, Head of Global FX Strategy at J.P. Morgan Private Bank, issued a comment on the BoE’s decision to the Reuters news agency on Thursday:

"The BoE told us that further tightening requires fresh evidence of inflation persistence. Data since the last meeting has not met that threshold. They’ll likely be sitting on ‘Table Mountain’ for a while, but in our view the next move for the BoE will be to lower rates. The BoE evidently doesn’t disagree; its forecasts see inflation returning to target in 2025 if rates remain unchanged into next year and then gradually decline."

"With the BoE in hand after the Fed yesterday and the ECB last week, all of the major central banks are now on hold in our view. At the same time, growth and inflation – particularly in Europe – are both moving in the same direction: lower. That’s a strong backdrop for fixed income; we like owning European bonds across the curve and funding tactical FX trades out of euro and sterling."

GBP forecast: Gains through 1.2206 could signal further upward moves for cable, says Scotiabank

In a GBP forecast issued on November 2, Scotiabank Chief Currency Strategist Shaun Osborne said the pound was generally firmer against the dollar, with potential gains on the cards for GBPUSD — widely known as cable in forex markets — if it manages to sustain a break through the 1.2206 level:

“Sterling price action reflects firm demand for the pound on weakness to or a little below 1.21 still but gains have been limited to the 1.22 area, near the early week high for cable. Intraday trend momentum is bullish but the daily DMI reading is neutral, at best.

GBP gains are being held back on the daily chart by trend resistance off the July high. Gains through 1.2206 should potentially signal potential for a bit more pickup in cable at least.”

When considering foreign currency (forex) for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.