The GBP/USD currency pair traded in proximity to a 7-week high of 1.3438 on Monday ahead of the outcome of the Bank of England’s policy meeting, while investors braced for the US Non-Farm Payrolls data tomorrow for more insight into macroeconomic conditions and the Fed’s future interest rate path.
The Federal Reserve delivered a largely anticipated rate cut last week, while noting it will wait for clearer signs on a cooling job market and inflation, which “remains somewhat elevated”.
But, the vote was divided, as three FOMC members continued to vote against the rate reduction.
FOMC policy makers signaled just one 25 bps rate cut for next year, or the same projection as in September.
Market pricing, as reflected by the CME FedWatch tool, now indicates a 76% chance that interest rates will remain unchanged at the January 2026 meeting, compared to 70% prior to the Fed’s December decision.
Meanwhile, the Bank of England is expected to lower its benchmark interest rate by 25 basis points to 3.75% at its December 18th meeting.
In November, the BoE left borrowing costs without change at 4%, while four policy makers voted in favor of a 25 basis point rate cut to 3.75%.
BoE policy makers acknowledged that UK CPI inflation had peaked and underlying disinflation had shown progress.
A subdued economy and rising labor market slack were also factors supporting disinflation, the BoE had said.
Policy makers also noted risks over achieving the 2% inflation target were now more evenly balanced. Persistent inflation has become a lesser concern, while downside risks from weak demand have risen.
The GBP/USD currency pair was last up 0.14% on the day to trade at 1.3383.
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