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- GBP/USD loses ground as the Pound Sterling struggles dovish tone surrounding the BoE policy outlook.
- BoE’s Megan Greene expressed doubt that the UK’s monetary policy is sufficiently restrictive.
- The US Dollar gains as the US House is set to vote on the bill to end the government shutdown.
GBP/USD extends its losses for the second successive day, trading around 1.3140 during the Asian hours on Wednesday. The pair depreciates as the Pound Sterling (GBP) struggles amid growing expectations that the Bank of England (BoE) will cut interest rates in December. Analysts at Morgan Stanley, Citigroup, and UBS Global Research have shifted their stance and expect the BoE to cut interest rates by 25 basis points (bps) to 3.75%.
BoE policymaker Megan Greene stated on Tuesday that she is not convinced the United Kingdom’s (UK) monetary policy is meaningfully restrictive. Greene noted that wage settlement data for next year is higher than desired and expressed concern about persistent inflation in the UK, suggesting that monetary policy may need to be more restrictive. She also emphasized that risk management around inflation should play a key role in shaping the BoE’s policy outlook, per Reuters
The GBP/USD pair also faces challenges as the US Dollar (USD) gains ground due to optimism over the ongoing process to reopen the United States (US) government. The US Senate completed its job and passed the bill that would end the government shutdown. The House is set to vote on the bill on Wednesday, sending it to US President Donald Trump for signature. That would reopen the government, sending paychecks and unleashing economic data releases.
Weaker-than-expected Automatic Data Processing (ADP) employment data, released on Tuesday, reinforced expectations of Federal Reserve (Fed) policy easing in December and weakened the US Dollar. Private employers shed an average of 11,250 jobs per week on average in the four weeks ended October 25, compared with 14,250 previously. The CME FedWatch Tool shows markets pricing in a 68% chance of a 25-basis-point rate cut in December.
