The BoE kept rates steady at 4.75% but three MPC members voted for a cut, leading to GBP weakness. Economic forecasts were also downgraded.
The Pound Sterling (GBP) declined following a surprising split vote within the Bank of England's (BoE) Monetary Policy Committee (MPC) despite the BoE maintaining its policy rate at 4.75%. The MPC voted 6-3 to keep rates stable, with Deputy Governor Dave Ramsden, Swati Dhingra, and Alan Taylor advocating for a 25 basis point reduction. The GBP/USD exchange rate last traded at 1.2506. OCBC’s FX analysts Christopher Wong observes that risks are tilted downwards.
The market anticipated only Dhingra's vote for a cut. The BoE staff also revised their economic forecast for the fourth quarter of 2024, predicting no growth compared to the 0.3% expansion projected in their November report. Combined, the dovish split and downgraded growth outlook negatively impacted GBP. The accompanying policy statement saw minimal changes from the previous one, while reiterating that policy would need to be 'restrictive for sufficiently long.' On inflation, the MPC acknowledged continued progress in disinflation but cautioned that 'remaining domestic inflationary pressures are resolving more slowly.' In written remarks to reporters, Governor Bailey stated that 'we think a gradual approach to rate cuts remains appropriate, but with heightened economic uncertainty, we cannot commit to when or by how much we will cut rates in the coming year.' GBP weakened amidst the dovish hold outcome and a stronger USD. Daily momentum shifted bearish, and the Relative Strength Index (RSI) declined. Risks remain skewed to the downside. Support levels are identified at 1.2450 and 1.2410. A break below these levels could target 1.23 (2024 low). Resistance is situated at 1.2570 (76.4% Fibonacci retracement of the 2024 low to high) and 1.2660 levels (21-day moving average). Today's economic calendar includes retail sales data
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