Sterling softens after Bank of England maintains rate; Dollar and Yen outlooks shift

Investing.com — The sterling trimmed its gains against the dollar and fell against the euro after the Bank of England (BOE) decided to keep its bank rate steady at 4.75%. This move was anticipated, but it’s worth noting that three out of nine policymakers were in favor of a rate cut.

The BOE anticipates a slight rise in inflation in the near term, and economic growth at the end of 2024 could be weaker than earlier projected. Policymakers are faced with the challenge of maintaining price stability without leaving monetary policy too tight.

Following the decision, the EUR/GBP rose to 0.8264 from 0.8236, and the GBP/USD fell to 1.2593 from 1.2631.

The Federal Reserve delivered a 25 basis-point rate cut on Wednesday, but indicated that it will slow the pace of cuts. U.S. rates are expected to remain at higher levels for longer, leading to a wider policy divergence with other major central banks.

Meanwhile, the yen’s weakness raises the possibility of forex intervention. After a hawkish Fed meeting, USD/JPY has risen well above 155 due to a rate hold from the Bank of Japan (BOJ) and an apparent lack of urgency to hike.

Despite the yen being the most undervalued currency in the G-10 space, the prospect of higher U.S. yields and a hesitant BOJ suggests that Japanese authorities may contend with USD/JPY at 160 for the majority of 2025.

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