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by In its September meeting, the Bank of England decided to keep interest rates stable at 5%, a move that was anticipated by many. This steadiness helped the GBP/USD currency pair surge to $1.33, marking its highest value since March 2022.
The Bank of England’s cautious stance on policy changes emphasizes a measured approach to any future modifications in its economic strategy.
GBPUSD Fundamental Analysis – 27-September-2024
Market Reactions and Predictions
Despite the stability, financial markets have adjusted their expectations, now foreseeing about 42 basis points in rate cuts from the central Bank by the end of 2024, a decrease from the 52 basis points previously anticipated.
This revised forecast follows the Bank’s signaling that it intends to phase out economic support measures carefully.
Comparing Global Monetary Policies
On the other side of the Atlantic, the Federal Reserve opted for a more aggressive strategy. It implemented a significant 50 basis point reduction in interest rates and hinted at possibly more cuts in the coming months and into the following year.
This aggressive reduction strategy contributed to a weakening US dollar, which benefitted the British pound, or sterling.
Inflation Dynamics in the UK
Regarding inflation, the UK’s annual inflation rate held steady at 2.2% in August, aligning with economic forecasts. Meanwhile, the inflation rate in services reached 5.6%, which was also anticipated.
Notably, the core inflation rate, which strips out volatile food and energy prices, climbed slightly higher than expected to 3.6%, compared to the predicted 3.5%. Both service inflation and the overall headline inflation rate remain under the levels previously projected by the Central Bank in August.
Conclusion: A Balanced Economic Outlook
With the Bank of England maintaining a steady interest rate and the Fed’s bold cuts, the sterling has found firm footing against the dollar. The UK’s inflation rates are stable but warrant careful monitoring as they exceed forecasts.
As we move towards the end of the year, these economic policies and their impacts will be crucial in shaping the financial landscape, not just in the UK but globally. Investors and policymakers alike should keep a close watch on these developments.
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