GBP/USD Analysis Today 25/9: Bailey Supports Gains (Chart)

(MENAFN- Daily Forex)

• The Pound Sterling has reached its highest levels in several months against both the Euro and the US Dollar this week.
• This strength is partly due to recent comments from bank of England Governor Andrew Bailey.
• Bailey stated that while he expects interest rates in Britain to fall, the progress will be slow.
• He also emphasized that the bank rate will not return to the near-zero levels seen during the crisis unless another crisis occurs.

He told Kent Online: "I think the path of interest rates will be down, gradually."

When asked if British households would see interest rates near zero again, Bailey said he "doesn't expect" that "what caused interest rates to go up so much was, among other things, two very big shocks to the economy." He adds, saying: "It all started with the financial crisis and then Covid was another big shock." Commenting on this, forex analyst Brad Bechtel at investment bank Jefferies says Bailey is indicating "that he doesn't see a return to very low interest rates in this cycle and that has also helped support the pound a bit."

According to forex trading, the GBP/EUR exchange rate rose to its highest level in more than two years, exceeding 1.20 amid expectations that interest rates in the UK will be cut more slowly than those in the eurozone. Meanwhile, the GBP/USD exchange rate is testing levels near 1.34 as US interest rates start to decline, with the Federal Reserve delivering a massive 50 basis point cut last week.

For its part, the bank said last week that it believes inflation risks remain and that a gradual approach to easing is appropriate. As long as the UK is on a slow track when it comes to cutting interest rates, the pound can maintain its upward momentum. According to analysts:“So far, the pound has outperformed other currencies on the margins, and is likely to remain in a better position against currencies such as the euro, the Japanese yen, and sometimes the US dollar, for the foreseeable future.”

Previously, the US dollar had retreated to new lows against the pound sterling after the comments of Bostic and Kashkari. Recently, the US dollar has come under renewed pressure after two members of the Federal Open Market Committee (FOMC) indicated that the market was right to expect more interest rate cuts. Sterling gains accelerated to their highest level since March 2022, after FOMC member and Atlanta Fed President Raphael Bostic said, "Progress on inflation and cooling the Labor market has appeared much faster than I imagined at the beginning of the summer." In a speech to the European Centre for Economic and Financial Research, he said: "At this moment, I imagine normalizing monetary policy sooner than I thought would be appropriate even a few months ago."

Recently, the Federal Reserve cut US interest rates by 50 basis points last month and the forecasts from the FOMC members showed that further rate cuts were in the works. This boosted US stocks, weighed on US bond yields and put the dollar exchange rate under pressure. The next test for the US dollar is this week's speeches and appearances by FOMC members, who will give their views on why the decision was made and what they think the future holds. For the forex markets, the path to further rate cuts is clear; this supports stocks and will weigh on the US dollar.

Top Forex Brokers1 Get Started 74% of retail CFD accounts lose money Technical forecasts for the GBP/USD pair today:

The GBP/USD bullish trend is strengthening, and the test of the 1.3400 resistance confirms this while technical indicators are moving towards strong overbought levels. Technically, the GBP/USD bullish momentum may remain until financial markets and investors react to the Fed's preferred US inflation reading at the end of the week. Finally, we still prefer to sell GBP/USD from every upside level.

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