GBP/USD rebounds from 12-week low with focus on Fed, BoE

The GBP/USD currency pair rebounded from yesterday’s 12-week low of 1.2834 on Thursday – a level it touched after Republican Donald Trump’s victory in the US presidential election.

Meanwhile, market focus now shifts towards major central banks’ policy meetings.

Trump achieved victory over Democrat Vice President Kamala Harris, while Republicans also won a majority in the US Senate.

Trump’s policies, aimed to restrict illegal immigration, impose new tariffs and cut taxes, may bolster growth and drive inflation higher, which could force the Federal Reserve to a slower monetary easing trajectory. And, this would underpin the greenback.

According to Jefferies Global Head of Forex Brad Bechtel, the US Dollar rally will strongly depend on the pace of Trump’s policy implementation.

Control over the House of Representatives, however, still remains in question.

“From here, we need to see if it will be a red sweep or not a red sweep: That will dictate the speed with which the market will move more broadly,” Bechtel was quoted as saying by Dow Jones Newswires.

Trump’s election victory comes just a day before the Federal Reserve concludes its two-day policy meeting.

The Fed is widely expected to cut its federal funds rate target range by 25 basis points to 4.50%-4.75% later today.

In September, the Fed began its monetary easing cycle with an out-sized rate cut (by 50 bps), which has been the first reduction in borrowing costs since March 2020.

Market players will also be on watch for any hints suggesting the Fed could skip a rate cut at its last meeting for this year.

Bank of England may also reduce rates by 25 bps

The Bank of England is largely expected to cut its benchmark interest rate by 25 basis points to 4.75% at its November policy meeting.

In September, the central bank left borrowing costs intact, though one monetary policy committee member voted in favor of a 25 bps cut.

The annual CPI inflation is expected to accelerate to around 2.5% by year-end, as declines in energy prices in 2023 fall out of the annual comparison.

Annual headline inflation in the UK has eased to 1.7% in September, or the lowest rate since April 2021.

And, annual services inflation has slowed to 4.9% in September, which has been its lowest level since May 2022.

Investors will be looking for signals about subsequent BoE rate cuts following the government’s inflation-raising budget.

Currency Pair Performance

As of 8:14 GMT on Thursday the GBP/USD currency pair was edging up 0.40% to trade at 1.2929.