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British Pound trades flat amid BoE caution, US Dollar recovers modestly

  • GBP/USD trades flat on Tuesday, holding within Monday’s range near 1.3520.
  • BoE Governor Bailey sees rates moving lower but warns of increased uncertainty.
  • A split within the MPC signals a cautious, data-driven rate path ahead.

The British Pound (GBP) is trading flat against the US Dollar (USD) on Tuesday, edging slightly lower from its intraday high while remaining within Monday’s range. The GBP/USD pair holds steady as the US Dollar eases slightly from a six-week low, with market participants eyeing upcoming US economic data and digesting fresh commentary from Bank of England (BoE) officials following Tuesday’s Monetary Policy Report Hearings.

At the time of writing, the GBP/USD pair is trading around 1.3521 during the late American session, paring some of Monday’s gains amid a lack of clear directional drivers. Meanwhile, the US Dollar Index (DXY) is staging a mild recovery after Monday’s drop to a six-week low, supported by upbeat JOLTS Job Openings data. The index has climbed back above the 99.00 mark, hovering near Monday’s high and last seen trading around 99.23.

Earlier on Tuesday, Bank of England officials appeared before Parliament to offer fresh insight into the central bank’s policy outlook during the Monetary Policy Report Hearings. BoE Governor Andrew Bailey reiterated that interest rates are likely to head lower, but stressed that the path ahead is increasingly uncertain. “I think the path remains downwards, but how far and how quickly is now shrouded in a lot more uncertainty,” Bailey noted, citing heightened global trade tensions and their potential to disrupt investment and economic growth.

Deputy Governor Sarah Breeden, a centrist on the Monetary Policy Committee (MPC), told lawmakers that she supported the May rate cut even in the absence of external trade shocks, reinforcing the BoE’s bias toward easing. However, divisions within the MPC remain clear—Swati Dhingra pushed for a deeper cut, warning of the drag from tight policy, while Catherine Mann, an external member of the MPC who opposed the May rate cut, said the labor market appeared to be cooling less than she had anticipated back in February, when she supported a more aggressive half-point reduction.

Overall, the BoE hearings revealed that while interest rates are likely to decrease, there is no clear consensus on how quickly this should occur. Some members are concerned that inflation may persist, while others believe that keeping rates too high for too long could harm the economy. With opinions clearly split, the central bank is likely to take a cautious, data-driven approach in the months ahead.

BoE FAQs

The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).

When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.

In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.

Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.

Author

Vishal Chaturvedi

I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.

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