Pound Strenghtens Against Other Currencies as BoE Holds Key Rate

Pound Strenghtens Against Other Currencies as BoE Holds Key Rate

Following a quarter-point reduction last month, the Bank of England (BoE) decided to keep its benchmark rate and prolonged its bond reduction plan for an additional year, which helped the British pound gain ground against other major currencies during Thursday’s European session.

By a vote of 8-1, the Monetary Policy Committee, led by Andrew Bailey, decided to maintain the Bank Rate at 5.00 percent. The MPC agreed in a close 5-4 decision at its August meeting to lower the rate by a quarter point from its 16-year peak of 5.25 percent.

In the third quarter, bank employees predicted that the UK economy would increase by 0.3 percent, less than the 0.4 percent predicted in August.

With the declines in energy prices from the previous year no longer being included in the annual comparison, inflation is predicted to reach approximately 2.5 percent by the end of this year.

A soft landing for the greatest economy in the world is anticipated as the U.S. Federal Reserve cut its main rate by 50 basis points and hinted at additional easing, sending European markets higher.

The pound started the European trading session at an early 2-day low of 1.3154 and surged to a 2-1/2 year high of 1.3314 against the US dollar. The 1.35 zone may serve as resistance for the GBP/USD pair.

The pound rose from early lows of 0.8424, 1.1185, and 188.18 against the euro, the Swiss franc, and the yen to nearly a 2-month high of 0.8392, nearly a 3-week high of 1.1261, and more than a 2-week high of 190.38. Should the pound continue its upward trajectory, resistance is probably located at 0.81 against the euro, 1.16 against the franc, and 196.00 against the yen.

Soon, the New York session will see the release of the following: U.S. weekly unemployment claims, the current account for the second quarter, the U.S. Philadelphia Fed manufacturing index for September, the U.S. leading index for August, and existing home sales for August.

Final Thoughts

The Bank of England’s decision to maintain its benchmark rate at 5.00% and extend its bond reduction program signals a cautious approach to managing the UK’s economic recovery. By opting to hold steady after a quarter-point cut, the Monetary Policy Committee appears to prioritize inflation control while balancing concerns about growth.

This decision comes amid expectations of slower economic expansion, with a 0.3% growth forecast for Q3, slightly down from prior estimates. However, the projected inflation decline to 2.5% by year-end reflects optimism that the country is stabilizing after dealing with the effects of rising energy prices and other inflationary pressures.

Meanwhile, the pound’s strength against major currencies like the US dollar, euro, Swiss franc, and yen highlights positive market sentiment following the Bank of England’s move. With the U.S. Federal Reserve also easing rates, European markets are responding favorably to the potential for a “soft landing” in the global economy.

This upward momentum in the British pound suggests confidence in the UK’s economic outlook, but future resistance levels for GBP/USD and other currency pairs may test whether this rally is sustainable. The release of upcoming U.S. economic indicators could further influence these movements, adding a layer of complexity to the currency’s trajectory in the near term.

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