Home Daily Commentaries BOE Rate Cut Expectations Lifts Pound

BOE Rate Cut Expectations Lifts Pound

See Wah Li
Written by
See Wah Li

See Wah Li

OFXpert

With more than 6 years of experience in the foreign exchange market, See Wah’s strength lies in developing effective solutions to help navigate the complexities of currency fluctuations.

| Tuesday 17 December, 2024

Daily Currency Update

UK wage growth data released this morning has prompted a scramble among traders to reassess expectations for future Bank of England rate cuts, creating ripples in the FX market.

Markets are now pricing in just a 7% probability of a rate cut this Thursday, down from 15% yesterday, reflecting a significant shift in sentiment. The repricing extends beyond the immediate decision, with markets scaling back expectations for the extent of rate cuts in 2025.

The Bank Rate, currently at 4.75%, is now projected to end 2025 at approximately 4.1%, indicating only two quarter-point cuts are fully priced in. This is a notable shift from yesterday's forecast of a drop closer to 4.0%, which implied three rate cuts next year.

For the FX market, this recalibration has provided support for the pound, which may see further strength if wage pressures persist, dampening expectations of aggressive policy easing from the Bank of England.

Key Movers

The US dollar remained strong on Tuesday, hovering near recent peaks, as markets brace for the Federal Reserve’s expected interest rate cut. Speculative long positions on the dollar have climbed to their highest levels since July, reflecting growing confidence that the Fed will signal a slower pace of easing in the long term. This shift has bolstered the greenback, adding pressure to rival currencies and shaping FX market dynamics ahead of the announcement.

Expected Ranges

  • GBP/USD: 1.2635 - 1.2725 ▼
  • GBP/EUR: 1.2085 - 1.2155 ▲
  • GBP/AUD: 1.9985 - 2.055 ▲
  • EUR/USD: 1.0445 - 1.0515 ▼

Written by

See Wah Li

OFXpert

See Wah is passionate about supporting positive transformations when it comes to managing foreign exchange. As a Senior Currency Consultant at OFX, his goal is to help businesses make informed decisions, alleviate risks, and enhance their currency strategies for success. With over 6 years of experience in the foreign exchange market, See Wah’s strength lies in developing effective solutions to help navigate the complexities of currency fluctuations and mitigate their impacts on business profitability.