- We have often mentioned that this trading week would be important and exciting. As expected, the US dollar has risen strongly against other major currencies after the Federal Reserve cut US interest rates by 25 basis points.
- Moreover, it indicated the end of a series of successive cuts.
- As a result, the price of the pound sterling against the US dollar GBP/USD fell to the support level of 1.2562, the lowest level for the currency pair in 3 weeks, before settling around the level of 1.2606 at the time of writing the analysis and ahead of the important Bank of England announcement later today.
The US Federal Reserve backs away from future rate cuts
The pound-dollar losses deepened after the Federal Reserve “outperformed the hawks” and backed away from its expected US interest rate cuts for 2025. According to the US central bank’s policy statement, one member of the Federal Open Market Committee (FOMC) – Beth Hammack – voted to leave US interest rates unchanged. New forecasts from the FOMC showed that officials believe fewer rate cuts are likely in 2025 and 2026.
They now expect only 50 basis points worth of cuts, meaning two cuts, while the September projections showed that cuts would be possible in 2025. As a result, the Federal Reserve is now expected to cut US interest rates two more times in 2026 and only once in 2027, raising the final interest rate to 3.1%. In general, the higher base rate for the Federal Funds rate would support US Treasury yields, which affect commercial interest rates, thereby increasing the attractiveness of US debt-based assets. This would attract foreign capital inflows, boosting the value of the US dollar.
Trading Tips:
The sterling dollar price will remain bearish amid cautious anticipation until the Bank of England announces later today. Decisively, be careful until the reaction to the bank’s announcements to determine the closing path for this week.
US Stocks Tumble After Interest Rate Hints
According to stock trading platforms, US stock indices experienced strong selling, with losses exceeding 3%, and US 10-year Treasury yields rose to their highest levels in seven months. Following the reaction to the Fed’s announcement and the statements of its chairman, Jerome Powell, the bank cut interest rates as expected, but dashed hopes for more rate cuts in 2025. As a result, the selling of US stocks was the worst after a meeting since the beginning of the pandemic, and the message was clear: the sustained rise and risk in the past two years are suddenly in danger.
Historically, the last time the S&P 500 index experienced such losses on the day of the Fed’s decision was on September 17, 2001, when the index fell by about 5%. It fell by 12% on March 16, 2020, a day after the central bank’s emergency meeting over the weekend during the pandemic.
Technical Analysis for the GBP/USD pair today:
The overall trend of the GBP/USD pair remains bearish, and if the pound does not receive a strong boost from today’s Bank of England announcement. Technically, the bears may find a stronger opportunity for a stronger downward move, and the support level of 1.2487, which the currency pair recorded at the end of last month’s trading, may be an easy target, as it is the lowest level for the currency pair since May 2024. Conversely, and on the same time frame, the initial downward trend will not be broken without the currency pair moving above the resistance of 1.0800 again. Finally, we still expect to sell the GBP/USD from every upward level. In addition to the Bank of England’s announcement, the GBP/USD will be affected today by the announcement of the US GDP growth reading and the number of weekly jobless claims. This, in addition to the extent of investors’ risk appetite.
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