GBPUSD jumps after BoE’s hawkish rate cut

• GBPUSD ↑ 80 pips after BoE “hawkish” rate cut  

• Central bank warns about Labour Budget inflation hit

• Traders see less than 25% chance of 25bp cut by December

• Bloomberg FX model: GBPUSD has 73% of trading within 1.2816 – 1.3121 over next one-week period

• Incoming Fed decision could spark fresh price swings 

GBPUSD rallied almost 80 pips on Thursday despite the Bank of England cutting interest rates for the second time this year.

Prices punched above the 1.2950 level, almost reaching the 100-day SMA as investors reacted to the BoE’s warning that Labour’s budget could fuel inflation in the future.

The Bank of England voted 8-1 to cut interest rates by a quarter point to 4.75% today, as widely expected.

But fears around inflation creeping back have shaved bets around BoE rate cuts with the odds of another 25bp by December dropping to 22% from 32% in the previous session.

Most importantly, BoE Governor Andrey Bailey stressed “the need to make sure inflation stays close to target”– essentially signalling that this could be the last rate cut of the year.

Bailey refused to comment when asked about the impact of Trump’s election win.

Nevertheless, Labour’s budget and Trump’s proposed tariffs could lead to higher inflation in the UK – ultimately forcing the BoE to adopt a cautious stance toward rate cuts in 2025.

With the BoE seen cutting rates “slower-than-expected”, this could support the Pound in the medium to longer term.

Watch out for the Fed decision…

Later this evening, the Federal Reserve is widely expected to cut interest rates by 25 basis points. But investors will be concerned with what actions the Fed plans to take in December and beyond following the US election.

Traders are currently pricing in a 72% probability that the Fed cuts rates again by December.

Any major shifts to these expectations could move the dollar.

Technical outlook

The GBPUSD remains in a wide range on the daily charts with resistance at 1.3050 and support at 1.2870.

• A solid breakout above the 100-day SMA at 1.2985 could trigger a move toward 1.3050 and the 50-day SMA at 1.3110.

• Should prices slip below 1.2950, this could see a decline toward 1.2870 and the 200-day SMA at 1.28100.

Bloomberg’s FX forecast model predicts 73% chance GBPUSD will trade within 1.2816 – 1.3121 range over the next one-week period.