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Recently, selling pressure on the British pound has decreased considerably. Perhaps the expectations of a soft policy from the Federal Reserve have influenced market sentiment. Perhaps the reason is the discussions about the Bank of England doing everything to keep borrowing costs high for as long as possible, which it could signal at the policy meeting scheduled for this Thursday.
The Monetary Policy Committee is widely expected to maintain high borrowing costs, which should remain so until 2024.
Recently, Governor Andrew Bailey and his nine colleagues from the Monetary Policy Committee underscored the ongoing concerns about inflation. This clearly indicates that interest rates will remain at their highest levels in the foreseeable future. However, unlike economists, traders expect the Bank of England to start lowering rates in June next year.
Regarding the upcoming meeting, the Bank of England is likely to leave the key policy rate unchanged on Thursday. Lately, the regulator has repeatedly expressed concern that market participants are factoring in rate cuts of a total of 80 basis points in 2024, which weakens financial conditions, diminishing the impact of the Bank of England's monetary policy tightening, thereby hindering its ability to achieve its inflation targets. Another thing, although consumer prices declined in the UK in October this year, surprising many economists, the consumer price index remains one of the highest among developed countries, forcing the Bank of England to continue to act quite stringently.
For this reason, many economists expect to see some resistance to the hawkish split within the committee during the meeting and some sharp words from Andrew Bailey, which should help the pound to resume its growth. The technical picture is just right for this. By rebounding above 1.2585, the buyers will regain a chance for a correction with a climb to 1.2610, keeping hope for updating the high at 1.2640. After that, we can talk about a sharper surge of the pound up to 1.2690. In case of a fall, the bears will try to take control over 1.2540. If they manage to do so, breaking the range will strike at the positions of the bulls and push GBP/USD to a low of 1.2500 with prospects of reaching 1.2450.
The statements made are also significant because the Bank of England will not be publishing new official forecasts until February next year. Only the minutes of the meeting will shed light on the MPC's opinion.
It's also important to pay attention to crucial data that will be released a day before the committee's decision is published. The United Kingdom's Gross Domestic Product shrank by 0.1% in October this year. Curiously, it is precisely such bleak prospects that prompted investors to bet on a policy easing by the regulator next year. Traders now see a chance that the first quarter-point rate cut will occur by May 2024.
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