BoE Governor Signals Potential Interest Rate Cuts

Governor Andrew Bailey of the Bank of England (BoE) indicated that Britain's economy is edging closer to a point where interest rate cuts may be feasible. This marks a significant shift as it's the first time since September 2021 that no member of the Monetary Policy Committee (MPC) has advocated for a rate hike. The change reflects a decrease in inflation from its peak of over 11% in 2022 to 3.4% in February 2024. Although he refrained from endorsing specific timing or magnitude, Bailey indicated that market expectations for two or three rate cuts throughout 2024 were reasonable.

While recent economic data, such as stable retail sales and consumer sentiment, suggest a recovering economy, inflationary pressures persist. The BoE forecasts a temporary dip below the 2% inflation target in the second quarter, driven partly by governmental policies.

Concerns about wage growth moderation persist, with impending increases in the minimum wage and general wage settlements hovering around 5%. The ruling Conservative Party is also eager for rate cuts as it seeks to bolster its position ahead of an anticipated election.

British manufacturers have raised their selling price expectations for the third consecutive month, reaching the highest levels in nearly a year due to disruptions in Red Sea shipping that have impacted supply chains. This development, along with higher oil prices and signs of a global industrial upturn after challenging years, has contributed to inflationary pressures. Despite British businesses showing signs of recovery from recession, stubborn price pressures may influence the Bank of England's cautious approach to interest rates.

Furthermore, official data revealed a larger-than-expected budget deficit in February, attributed to cost of living payments and past inflation effects on public finances. This underscores the limited fiscal flexibility for the upcoming government.

In the international context, the dollar stabilized amidst strong U.S. economic data. U.S. consumer confidence remained steady in March, with concerns shifting towards the political environment ahead of the presidential election. Additionally, U.S. home prices rose at a slower rate in January, marking the first monthly decline in 17 months, despite enduring high mortgage rates. Hence, it is anticipated that the GBP/USD currency pair will remain stable, fluctuating within the existing range due to similar rates of return between the two economies.

Data for Technical Analysis (1H) CFD GBP/USD

Resistance : 1.2616, 1.2618, 1.2621

Support : 1.2612, 1.2610, 1.2607

1H Outlook 

Source: TradingView  

Buy/Long 1 If the support at the price range 1.2602 - 1.2612 is touched, but the support at 1.2612 cannot be broken, the TP may be set around 1.2616 and the SL around 1.2597, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.2616 - 1.2626, TP may be set around 1.2637 and SL around 1.2607, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.2616 - 1.2626 is touched, but the resistance 1.2616 cannot be broken, the TP may be set around 1.2610 and the SL around 1.2631, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.2602 - 1.2612, TP may be set around 1.2590 and SL around 1.2621, or up to the risk appetite.       

Pivot Points Mar 27, 2024 02:53AM GMT