The GBP/USD pair held steady around 1.3140 at the start of the week, showing little movement as investors turned their attention to Thursday’s Bank of England (BoE) policy announcement. The British pound (GBP) is trading cautiously, with market participants weighing the possibility of an interest rate cut amid signs of cooling inflation and labor market softness.
Markets divided on BoE policy outlook
According to a Reuters survey, traders currently assign roughly a one-in-three probability that the BoE will lower its benchmark rate by 25 basis points to 3.75%. Expectations for monetary easing have strengthened following recent data showing slower consumer price growth and moderating labor demand in the three months ending August.
During its September meeting, the BoE indicated that inflationary pressures were likely to peak around 4%, suggesting policymakers could soon pivot toward a more accommodative stance if price growth continues to ease.
Market opinions remain mixed. Analysts at Goldman Sachs anticipate a 25-basis-point rate cut, while ING expects rates to remain unchanged in what could be a close 5-4 vote. This uncertainty has kept the pound volatile in recent sessions as traders position ahead of the decision.
Dollar remains resilient ahead of US data
The US dollar (USD) continues to hold firm, supported by diminishing expectations for a December rate cut from the Federal Reserve (Fed). Fed Chair Jerome Powell reiterated that no decision has been made regarding next month’s policy move, dampening hopes for near-term easing.
Latest data from the Institute for Supply Management (ISM) showed US manufacturing activity contracting for an eighth straight month, with the Manufacturing PMI falling to 48.7 in October from 49.1 in September. Despite the weaker print, the greenback has remained broadly stable as investors await key US employment figures and further Fed guidance.
Outlook
With both central banks approaching policy inflection points, GBP/USD is likely to remain range-bound in the near term.
The BoE’s Thursday decision and accompanying commentary will be critical in shaping market expectations for the remainder of the year, particularly as investors gauge whether UK policymakers are ready to join their global peers in easing monetary conditions.
