Pound Under Pressure, Markets Confused About Fed or BoE Choice
The GBP/USD pair weakened to around 1.3330 during the Asian session on Thursday morning, retreating from a nearly two-month high. Strengthening demand for the US dollar (USD) weighed on the pound sterling, after selling pressure on the greenback had previously eased. However, strong expectations that the Federal Reserve (The Fed) will cut interest rates at its meeting next week have the potential to limit further weakness in the pair.
Several weaker US economic data this week, such as the Manufacturing PMI and the ADP employment report, have further strengthened expectations for a Fed rate cut in December. The market now prices an approximately 89% chance of a 25 basis point cut, with a total reduction of approximately 89 bps by the end of next year. The release of US Initial Jobless Claims data tonight will provide additional clues for market participants in gauging how aggressively the Fed can ease policy.
In terms of US monetary policy, market attention is also focused on President Donald Trump's stated plan to announce a successor to Jerome Powell as Fed Chair early next year. Reuters reports that White House economic adviser Kevin Hassett has emerged as a strong candidate. Hassett is known to align with Trump's view of faster and deeper interest rate cuts to boost economic growth, which in the long term could be a negative factor for the US dollar's strength.
Meanwhile, in the UK, the prospect of a Bank of England (BoE) interest rate cut has put additional pressure on the pound. The latest autumn budget reinforced expectations that the BoE will cut interest rates at its December 18 meeting. Prime Minister Keir Starmer emphasized the importance of lowering inflation and interest rates to stimulate investment and growth. Most analysts expect the BoE to cut interest rates to around 3.75%, with the market pricing in a nearly 90% chance. The combination of the Fed and the BoE potentially being equally dovish puts GBP/USD in a sentiment tug-of-war, with short-term movements heavily dependent on subsequent data and policy signals from both central banks. (asd)
Source: Newsmaker.id
