GBP/USD: Pound Dips Toward $1.36 After Bank of England Stays Put on Interest Rates

UK currency has been on a roll lately, gaining more than 2.3% from its September lows. Is there more upside now that rates stayed steady?

🤔 Pound Shrugs at Rate Hold

• The GBPUSD pair got a bit battered Thursday after the Bank of England voted to keep interest rates unchanged. Not at all unexpected – markets were already pricing it in.
• What wasn’t priced in, however, was the forward guidance, which showed that a cut within this year was far from guaranteed. In other words, the UK’s central bankers can’t make up their mind whether to lower rates, especially with inflation on the loose at 3.8% for August.
• The uncertainty pushed traders out of the pound and into alternative currencies, sending the pound-dollar lower by about 60 pips to $1.36 from a session high of $1.3660.

👀 When Rate Cut?

• “The Committee remains focused on squeezing out any existing or emerging persistent inflationary pressures, to return inflation sustainably to its 2% target in the medium term,” the BoE said in a statement.
• The vote wasn’t unanimous. Two committee members voted to reduce borrowing costs by 25 basis points. Seven members opposed that decision and instead supported a hold.
• Still, the BoE flagged some concerns, saying that it “remains alert to the risk that this temporary increase in inflation could put additional upward pressure on the wage and price-setting process.”

📣 What’s the Pound to Do?

• Against this backdrop, the pound’s fate is now in limbo. On the one hand, a rate hold at the current 4% threshold suggests a fairly friendly rate environment that supports the local currency’s upside. But on the other, creeping inflation eats into the pound’s ability to return handsome yields.
• And that dynamic may send investors seeking better-yielding currencies with lower headline inflation. Despite the gloomy outlook, traders are happy to bid up in the long run.
• The pound is up about 2.3% against the buck from its September nadir and more than 7% higher from April’s tariff-fueled crash. Technicals suggest that there could be more upside – a recent double top was just taken out.