The Pound Sterling has experienced a downturn following the Bank of England’s (BoE) recent monetary policy announcement, which confirmed that interest rates would remain unchanged at 4%. The decision came by a vote of 7-2, reflecting a split among Monetary Policy Committee (MPC) members regarding the right course of action amid ongoing inflationary pressures.
The latest Consumer Price Index (CPI) data indicated that UK inflation remains elevated, reported at 3.8%, marking the highest level since early 2024. Despite these inflationary concerns, the majority of MPC members opted to maintain current borrowing rates, citing a need for caution in light of weaker economic growth. Notably, Swati Dhingra and Alan Taylor voted in favor of further monetary policy expansion. Taylor has previously expressed the necessity for looser monetary policies to invigorate a sluggish economy, warning that restrictive measures could unintentionally lead to lower inflation and weak economic activity.
BoE Governor Andrew Bailey has been characterized by a cautious approach, emphasizing gradual moves in adjusting monetary policies to avoid potential economic destabilization.
In the wake of the announcement, the Pound surrendered some of its earlier advantages, trading around 1.3610 against the US Dollar. The US Dollar itself is also struggling to maintain momentum after a recent recovery fueled by the Federal Reserve’s (Fed) rate cut announcement. The Fed recently initiated a monetary easing period with a 25-basis point reduction, bringing rates down to a range of 4.00%-4.25%, marking the first reduction of the year. This decision was taken in response to slowing job growth amidst persistent inflation exceeding target levels.
Market attention is now shifting towards upcoming economic data in the US, particularly the Initial Jobless Claims report for the week ending September 12. Forecasts suggest that claims will decline to 240,000 from the previous week’s 263,000. Jobless claims data is keenly observed by investors, especially as dovish expectations have grown following a spike in claims to the highest levels in four years.
From a technical standpoint, the Pound is hovering near 1.3585 against the US Dollar, showing signs of corrective behavior as it tests a breakout from a recent Ascending Triangle chart pattern. The 20-day Exponential Moving Average around 1.3535 supports a bullish short-term trend, while the 14-day Relative Strength Index (RSI) aims to remain above 60. A sustained movement above this level could trigger fresh upward momentum. Conversely, the key support zone is identified near the August 1 low of 1.3140, while resistance remains at the July 1 high near 1.3800.
Overall, the BoE’s decision to hold interest rates steady reflects the delicate balance the central bank seeks to maintain amidst rising inflation and a lukewarm economic landscape. Traders and investors will be closely watching economic indicators and US job market data to gauge the broader economic trajectory in the coming weeks.
