Sterling is recovering even as the Bank of England looks ready to resume its interest rate cutting cycle

Sterling is rebounding strongly against the US dollar, following Wednesday’s gains.
The US dollar should remain well supported by Trump’s victory in the US presidential election.
Investors are waiting for decisions on the monetary policy of the Fed and the BoE, and markets expect that both central banks will reduce interest rates by 25 basis points.

The pound sterling (GBP) rebounds sharply to near 1.2935 against the US dollar (USD) during Thursday’s session in London, after refreshing a near 11-week low near 1.2830 on Wednesday. GBP/USD is rebounding while the US dollar (USD) is making a slight correction after a keen rise. The U.S. Dollar Index (DXY), which measures the dollar’s value against six major currencies, falls to nearly 104.90 after hitting a up-to-date four-month high of 105.40.

The US dollar strengthened strongly on Wednesday following the landslide victory of Republican candidate Donald Trump over his Democratic rival Kamala Harris. The dollar’s attractiveness surged when Trump announced a blanket 10% escalate in import tariffs and corporate tax cuts if he won the presidential election, which traders interpreted as a positive impact on the U.S. dollar.

Higher tariffs could escalate demand for domestic production, while lower corporate taxes would leave more money in the hands of corporations, which would spur investment. A scenario that will lead to higher investment, spending and labor demand will lead to escalating price pressures and enable the Federal Reserve (Fed) to adopt a hawkish stance on interest rates.

For significant clues on the impact of Trump’s victory on the path of United States (US) interest rates and the outlook for inflation, investors will focus on the Fed policy meeting taking place at 19:00 GMT. Officials are widely expected to cut interest rates by 25 basis points (bps) to a range of 4.50-4.75%.

Daily Market Change Summary: Sterling is outperforming its main competitors

Sterling is performing well against its main competitors, with the exception of Asia-Pacific currencies, ahead of the Bank of England’s (BoE) monetary policy decision at 12:00 GMT. The BoE is expected to cut interest rates by 25 basis points (bps) to 4.75%, by a vote of 7 to 2. The two divergent votes of the Monetary Policy Committee (MPC) seem to favor leaving interest rates at current levels.
This will be the second interest rate cut by the BoE this year. The BoE began cutting interest rates in August, cutting rates by 25 basis points, but decided to keep them steady in September.
It will be compelling to watch BoE Governor Andrew Bailey’s press conference following the policy decision. Bailey is expected to face a slew of questions about the impact of Donald Trump’s victory in the US presidential election on monetary policy and inflation and last week’s fall forecast statement.
According to the National Institute of Economic and Social Research (NIESR), the growth rate of the British economy could fall by more than half to 0.4% if Trump implements tariff increases, as he promised in the election campaign.

Technical Analysis: Sterling remains above the 200-day EMA

Sterling is rebounding sharply after hitting a up-to-date 11-week low near 1.2830 against the US dollar. GBP/USD pared losses after showing buying interest near the 200-day exponential moving average (EMA) near 1.2860.

However, the short-term trend remains down as the 20-day and 50-day exponential moving average (EMA) around 1.2990 and 1.3030 are falling, respectively.

Breaking the lower boundary of the ascending channel on the daily time frame is also evidence of further declines.

The 14-day relative strength index (RSI) is hovering around 40.00. The bearish trend would return if the RSI (14) fails to maintain this level.

Looking downwards, the round support at 1.2800 will be the main cushion for the sterling bulls. On the other hand, Cable will face resistance near the psychological value of 1.3000.