GBPUSD Analysis – The value of the British pound has recently seen a notable decrease, dipping below $1.27, a change largely attributed to the growing likelihood of interest rate reductions in the near future. This shift comes in the wake of a new CPI report revealing a drop in UK inflation to 3.8%—a figure not seen since September 2021 and lower than the predicted 4.4%. Additionally, the core inflation rate fell to 5.1%, marking its lowest point since January 2022 and falling short of the anticipated 5.6%.
As a result, there’s a strong trend among traders to place their bets on the Bank of England slashing interest rates next year. Current predictions suggest a total cut of 143 basis points, effectively pointing to five quarter-point reductions with a 70% likelihood of an additional sixth cut. This forecast persists even though Andrew Bailey, the Governor of the Bank of England, has stressed the need to keep rates higher for an extended period. It’s important to note that despite these reductions, inflation remains nearly twice the BOE’s target of 2% and is the highest among the Group of Seven nations.