GBP forecast: Pound at six-month lows as BoE pauses hikes

Pound slides to six-month lows as BoE puts rate hikes on ice

The British pound (GBP/USD) saw a nearly 1% decline, reaching $1.22 — its lowest level since March — after the Bank of England (BoE) decided to keep interest rates unchanged during its September meeting, ending a sequence of 14 consecutive interest rate hikes.

The market had been divided between expecting another rate increase and anticipating a pause in the tightening cycle, especially following the unexpected drop in the inflation rate the previous month.

However, the central bank did acknowledge the need for further tightening in monetary policy if there were indications of more persistent inflationary pressures. Nonetheless, among the nine policymakers, four voted in favor of a rate hike during the meeting, indicating a tight 5-4 vote.

Traders are currently assigning a roughly 64% likelihood that the central bank will implement a 25-basis point interest rate increase in November — a decrease from the 81% probability anticipated prior to the decision.

James Smith, an economist at Dutch bank ING, reviewed the meeting:

As of 14:40 p.m. CET, the pound to dollar rate stood at $1.224, down 0.74%.

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GBPUSD forecasts: BoE signals higher-for-longer rates, sinks pound

“The BoE thinks they have done enough,” Mark Nash, head of fixed income alternatives at Jupiter Asset Management, told Bloomberg. “But they are taking risk with inflation as the pound is falling.”

Before the BoE meeting on Thursday, the pound had already shown the weakest performance compared to other major currencies this month, having shed close to 3% of its value against the greenback. It faced additional downward pressure following the Federal Reserve meeting on Wednesday. While the Fed maintained its target range for the federal funds rate at a 22-year high of 5.25%-5.5% on September 20th, in line with market expectations, it also hinted at the possibility of another rate hike this year, providing a boost to the dollar.

At the time of writing, the U.S. Dollar Index (USDX) was trading at 105.7, up by 0.5% from the previous day.

ING’s James Smith wrote that the BoE would likely pause its monetary tightening cycle in the upcoming months, which could then have a negative impact on the pound:

In his overview of the decision, Markets.com Chief Market Analyst said the BoE’s message was higher-for-longer, although it couldn’t be classed as a “hawkish hold” similar to the Fed:

The pound to dollar forecast from Australian bank Westpac, last updated on September 15, saw the pair trading at $1.27 in December 2023, $1.28 in March 2024, and $1.29 in June 2024, indicating a potentially bullish trajectory for GBP.

Economic data aggregator TradingEconomics was bearish on the pound in its most recent GBP forecast, projecting cable to possibly reach $1.21 by the end of this quarter. The platform’s 12-month pound forecast estimated the currency to trade at a potential $1.14 by September 2024.

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.