- BoE’s Bailey says no plan to cut rates
- There is resistance at 1.2348 and 1.2476
- GBP/USD tested support at 1.2287 earlier. Below, there is support at 1.2183
The British pound has edged lower on Wednesday. In the North American session, GBP/USD is trading at 1.2287, down 0.10%. There are no tier-1 releases out of the UK or the US today, leaving investors to focus on comments from Bank of England Governor Bailey earlier in the day.
BoE’s Bailey Pours Cold Water on Rate Cuts
The Bank of England kept rates on hold for a second straight time last week at 5.25%, the highest level in 15 years. Investors were keen to hear from Governor Bailey who spoke today in Ireland. Bailey sounded hawkish, reiterating that rates would have to remain “restrictive for an extended period” in order to bring inflation back down to the 2% target. Bailey said that the BoE is projecting that inflation will fall back to target in about two years.
Will the BoE cut rates anytime soon? Bailey flat-out rejected the idea, stating that “it’s really too early to be talking about cutting rates”. However, BoE Chief Economist Huw Phill appeared to contradict his boss, saying on Monday that a cut in August 2024 “doesn’t seem unreasonable”.
Phill noted that too restrictive a policy could create a recession and push inflation below target. The discussion over rate cuts may be hypothetical at present, but rates will have to come down eventually and BoE policymakers are likely to have differences of opinions on the matter.
In the US, Fed Chair Powell made public remarks earlier today but did not address monetary policy. Fed Reserve Governor Michelle Bowman said on Tuesday that the Fed may need to raise rates if inflation falls too slowly. Bowman said that the Fed has made progress on the inflation front but it remains too high, with services inflation remaining stubborn and the risk of higher energy prices.
The markets have priced in a rate cut as early as May, with the odds of a rate cut of at least 0.25% rising to 51%, up from 40% a week ago, according to the CME Group’s FedWatch tool.
GBP/USD Technical