The BOE has a dovish cut leading the GBPUSD lower. What are the technicals saying now?

In the kickstart video above, I take a look at three of the major currency pairs the EURUSD, USDJPY and GBPUSD.

The USD is mostly higher today (exception is the USDJPY with a modest decline) , after declines yesterday vs the major currency pairs.

The GBPUSD is the biggest mover (USD up by around 1%) after its interest rate decision today. The Bank of England (BOE) announced a cut of the bank rate by 25 basis points to 4.50%. The decision was unanimous (9-0), contrary to expectations of an 8-1 vote, with Dhingra and Mann supporting a larger 50 bps cut. The BOE remains cautious about inflation while signaling a gradual approach to policy adjustments.

Key Takeaways:

• Rate Decision: Bank rate cut from 4.75% to 4.50%, in line with expectations.
• Voting: Unanimous 9-0 decision, with two members favoring a larger 50 bps cut.
• Inflation: Domestic inflationary pressures are easing but still somewhat elevated.
• Policy Stance:
  • Monitoring for signs of persistent inflation.
  • A gradual approach to policy easing is deemed appropriate.
  • Monetary policy will remain restrictive as needed.
  • Decisions on restrictiveness will be made at each meeting.
• Economic Outlook:
  • GDP fell by 0.1% in Q4 2024 (previously estimated at 0.0%).
  • GDP expected to rise by just 0.1% in Q1 2025.
  • Growth is anticipated to pick up from mid-2025.
• Inflation Projections (CPI):
  • 1-year: 3.0% (previously 2.7%).
  • 2-year: 2.3% (previously 2.2%).
  • 3-year: 1.9% (previously 1.8%).

The BOE’s decision reflects confidence in the disinflationary process but underscores the need for cautious policy adjustments amid economic uncertainties.

Governor Bailey said that he expects to be able to cut rates further but will have to judge on a meeting by meeting basis on far and fast they go.

The market is pricing in an additional 60 bp between now and year end with the next cut now expected in May.

In other overnight central bank news:

• ECB’s Rehn stated that estimates indicate the neutral rate is at the lower end, approximately 2% or slightly below. He emphasized the need to be prepared to adjust rates below the neutral level to support economic growth if necessary.
• ECB executive board member Piero Cipollone stated that there is still room for adjusting interest rates downward, as inflation is nearing the target and economic fundamentals remain in line with December projections. He emphasized that rate cuts align with the declining inflation trend and reiterated that a recession is not expected, with a soft landing remaining the main scenario. However, he warned that U.S. tariffs on China could lead to an influx of Chinese goods into Europe, potentially impacting growth and inflation. Despite these risks, the ECB’s outlook has not changed significantly since the beginning of the year, with the next rate cut still anticipated in March, though the trajectory beyond that remains uncertain.
• BOJ board member Tamura stated that the central bank will assess the economy’s response to rate hikes while determining the appropriate neutral rate, without assuming it should be 1%. He noted that upward price risks are gradually increasing and emphasized a flexible approach to the pace of rate hikes, without a preset timeline. While the policy rate has not reached 0.75% in 30 years, Tamura stressed that rate increases will be implemented in stages based on progress toward the inflation target, which will be evaluated using multiple economic indicators. *NOTE While traders currently expect the next rate hike around July or September, an earlier move remains possible depending on market stability and the outcome of Japan’s spring wage negotiations in March.
• Federal Reserve Vice Chair Philip Jefferson stated that he is comfortable keeping the Fed Funds rate at its current restrictive level until there is greater clarity on the overall impact of policy changes, including those influenced by the Trump administration. However, he noted that even if the rate were 100 basis points lower, it would still be considered restrictive, allowing the Fed to take a patient approach in assessing economic conditions before making any adjustments. More dovish but short term neutral.

Meanwhile, Bank of America on RBA policy expectations:

• Bank of America forecasts that the Reserve Bank of Australia (RBA) will implement three interest rate cuts in 2025, bringing the terminal rate to 3.6%, compared to market expectations of four cuts to 3.35%. The outlook is driven by sticky inflation near the upper end of the 2-3% target band, ongoing fiscal spending, and a tight labor market, which suggest a shallower rate-cutting cycle compared to other economies. Additionally, BoA sees risks skewed toward higher rates, indicating a cautious approach by the RBA.

On the economic calendar in Europe today:

• CHF (Swiss Franc): Unemployment Rate remains unchanged at 2.7%, in line with the forecast.
• EUR (Euro): German Factory Orders (m/m) increased significantly by 6.9%, far exceeding the 1.9% forecast and recovering from the previous decline of -5.2%.
• GBP (British Pound): Construction PMI fell to 48.1, below the forecast of 53.5 and previous value of 53.3, signaling contraction in the sector.
• EUR (Euro): Retail Sales (m/m) declined by -0.2%, slightly worse than the forecast of -0.1%, following a flat previous reading of 0.0%.

Geopolitically, the narrative has shifted from tariffs to Gaza

• Donald Trump suggested that, after the conclusion of fighting, Israel would turn over the Gaza Strip to the U.S., where Palestinians would be resettled in safe, modern communities. The U.S. would lead development projects in the area, creating world-class infrastructure without deploying soldiers, aiming for regional stability and prosperity.

Brief Thought: This proposal envisions a dramatic shift in regional governance and redevelopment but raises questions about feasibility and political acceptance.

US stocks closed higher yesterday thanks to a late day rally with the Dow leading the way. The recap from yesterday showed:

• • Dow industrial average closed up 317.24 points or 0.71% at 44873.28. The index was down -203.05 points at session lows.
  • S&P index rose 23.60 points or 0.39% at 6061.48. It was down -30.82 points
  • NASDAQ index rose 38.31 points or 0.19% at 19692.33. At session lows, the index was down -155.12 points
  • Russell 2000 rose 26.02 points or 1.14% at 2316.23

Today, the indices are trading marginally higher:

• Dow industrial average +40 points
• S&P index +12.2 points
• Nasdaq index +11 points

European major indices are mixed with the :

• German DAX, +0.91%
• France’s CAC +0.97%
• UK’s FTSE 100 +1.60%
• Spain’s Ibex +0.65%
• Italy’s FTSE MIB +0.73%

In the US debt market, the yields are higher with the exception of the 2 year

• 2-year yield 4.220%, +3.5 basis points
• 5-year yield 4.286%, +4.4 basis points
• 10-year yield 4.456%, +3.6 basis points
• 30-year yield 4.665%, +2.4 basis points

Looking at other markets to start the trading day:

• Crude oil is trading up $0.35 or 0.45% at $71.38
• Gold is trading modestly lowered today by $3.64 or -0.12% at $2862.61. A new record high was reached yesterday at $2882.39
• Bitcoin is trading higher by $1700 at $98,300

On the economic calendar today:

• Initial jobless claims are expected at 213K versus 207K last week. Continuing claims are expected at 1.874 million versus 1.858 million last week.
• Unit labor costs for the fourth quarter preliminary is expected to rise by 3.4% versus 1.9% in the third quarter. Productivity preliminary is expected to rise by 1.4% versus 2.2% in Q3.
• Canada’s IV PMI for January will be released at 10 AM. Last month the index on a seasonally adjusted basis came in at 54.7.

Fedspeak: Board Gov. Waller is expected to speak on “payments” at 2:30 PM ET. Maybe there will be some Q&A or some nuggets of economic/policy information in the remarks.

This article was written by Greg Michalowski at www.forexlive.com.