The Governor of the Bank of England stated that it is too early to start speculating on interest rate cuts. As a result, GBP/USD strengthened.

The US dollar's rivals rallied in trading on Thursday (15/December). One of them was the pound sterling. GBP/USD accelerated to near the 1.2800 threshold on the back of the Bank of England's (BoE) statement which was much more hawkish than the US Federal Reserve.

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The BoE Monetary Policy Committee meeting decided to keep the interest rate at 5.25% and to raise it further if necessary. The hawkish bias was very evident in the policy vote and the post-meeting press conference, despite some recent UK economic data that has slowed down.

A total of 6 out of 9 Committee members agreed to keep interest rates at their current level. The other three wanted to raise rates to 5.5%.

BoE Governor Andrew Bailey stated in his press conference that he "cannot say for sure that interest rates have peaked". When reporters asked Bailey why the BoE did not follow the Fed's change in policy direction, he replied "There is a difference between our position and the US". He further emphasized, "It is too early to start speculating on interest rate cuts".

Market participants immediately responded to the news by pushing back the initial projection of a BoE rate cut from May to June 2024. The total forecast for BoE rate cuts next year was also reduced from 114 bps to 107 bps only.

In line with this, the pound sterling exchange rate strengthened broadly. GBP/USD rallied the most as the Federal Reserve's stance was more dovish than previously expected.

The EUR/GBP rally was held at around 0.8600, as the European Central Bank's stance was equally more hawkish than market expectations. Meanwhile, GBP/JPY rebounded to the 181.00 range amid uncertainty ahead of next week's Japanese central bank meeting.