- GBP/USD loses ground as Pound Sterling weakens on rising odds of BoE rate cuts.
- Traders now see about a 68% chance of a quarter-point BoE rate cut in December, amid easing inflation.
- The US Dollar struggles due to the increased likelihood of a 25-basis-point rate cut by the Fed.
GBP/USD loses ground for the second successive session, trading around 1.3250 during the Asian hours on Wednesday. The pair weakens as the Pound Sterling (GBP) declines following data from the British Retail Consortium (BRC) showing UK food prices falling at the fastest pace in nearly five years, strengthening expectations of upcoming Bank of England (BoE) rate cuts.
Traders now assign roughly a 68% probability to a quarter-point BoE rate cut in December, as softer inflation and fiscal headwinds provide the central bank with greater scope to ease policy. Expectations for rate cuts also strengthened after reports that the Office for Budget Responsibility plans to lower its UK productivity growth forecast by about 0.3 percentage points, a downgrade that could widen the fiscal gap by nearly £20 billion. The revision has intensified concerns ahead of Chancellor Rachel Reeves’s November budget, which is expected to address a potential shortfall of up to £35 billion.
However, the downside of the GBP/USD pair could be restrained as the US Dollar (USD) remains subdued ahead of the US Federal Reserve (Fed) policy decision due later in the day. The Fed is widely expected to lower interest rates by another quarter point, bringing the benchmark rate to 3.75-4.00%, at its October meeting. The CME FedWatch Tool indicates that markets are now pricing in a Fed rate cut in October and a 91% possibility of another reduction in December.
Traders will be watching for any signals from Fed Chair Jerome Powell regarding the pace of future easing, as markets have already priced in another rate cut in December. The October CNBC Fed Survey also indicates that the Fed could implement additional rate reductions over the next two meetings.
