FED’s and BoE’s divergent decisions add pressure to the USD – London Business News | Londonlovesbusiness.com

The U.S. dollar has been under pressure in recent sessions, generally influenced by the divergent decisions of the Federal Reserve (Fed) and the Bank of England (BoE).

The British pound briefly broke above the 1.33 mark against the dollar on Thursday, reaching its highest level since March 2022, although it has since lost much of its momentum following the BoE meeting.

Recently, the positive dynamics in the GBP/USD pair had intensified after the Fed opted for a 50-basis point rate cut, a move widely regarded as a “jumbo” cut, the first in four years.

In contrast to the significant action by the Fed, although Powell mentioned that half-point cuts would not become the “new pace,” the BoE decided to keep the interest rate unchanged at 5%, signaling that a gradual approach to easing monetary policy remains appropriate.

This divergence in the recent policy decisions between the two major institutions has favored the pound, as it has temporarily placed the cost of borrowing relatively higher in the UK compared to the U.S.

On the other hand, the BoE, which had cut rates in August, stood firm in its decision not to implement further cuts for now, although one committee member advocated for additional adjustments. This stance has been supported by an inflationary context in the UK, which, despite showing some deceleration, remains elevated, particularly in the services sector, where inflation reached 5.6% in August.

As the market anticipates further monetary policy moves from both the U.S. and the UK, the evolution of the GBP/USD pair is expected to continue experiencing volatility, especially in an environment highly sensitive to policy decisions.