The British pound saw a decline on Thursday, with GBP/USD trading at 1.2683 during the North American session, marking a 0.29% decrease for the day. The Bank of England’s decision to keep rates unchanged at today’s meeting was in line with expectations. There were no significant releases from the US on the same day.
Bank of England Maintains Rates
As anticipated, the Bank of England opted to keep interest rates steady at today’s meeting. This decision marks the eighth consecutive time that the benchmark rate has remained at 5.25%. Prior to the meeting, the likelihood of a hold was priced at 95% by the money markets.
The Monetary Policy Committee voted 7-2 in favor of maintaining rates, with two members advocating for a quarter-point reduction. This outcome was widely predicted by the markets and mirrored the vote from the previous meeting in May. Despite reaching a 16-year high, the central bank remains cautious about cutting rates due to concerns surrounding inflation.
While the inflation rate dropped to 2% in May, meeting the BoE’s 2% target for the first time in nearly three years, services inflation remained stubbornly high at 5.7% in the same month. Although this figure slightly decreased from 5.9% in the previous report, it exceeded the market’s forecast of 5.5%. The rate statement highlighted the persistently high level of services inflation.
Political factors likely influenced the BoE’s decision-making process. With the UK in the midst of an election campaign, the central bank aimed to avoid being perceived as interfering in the election process. A rate cut during this sensitive period could have been interpreted as aiding Prime Minister Sunak, whose Conservative Party is currently trailing in the polls. If rates had been reduced, Sunak might have claimed credit for the decision, suggesting that the government’s economic policies were effective. However, the next BoE meeting is scheduled to take place after the election in August.
GBP/USD Technical Analysis
In terms of technical analysis, GBP/USD broke below support levels at 1.2717 and 1.2695 earlier, placing pressure on the 1.2670 support level. Resistance levels are identified at 1.2742 and 1.2764.
In conclusion, the decision by the Bank of England to maintain interest rates had a direct impact on the performance of the British pound against the US dollar. The central bank’s cautious approach reflects its concerns about inflation and the broader economic environment. Investors will now closely monitor future developments and upcoming economic indicators for further insights into the currency pair’s movements.