GBP reacts to BOE rate cut, initial gains pare back – OCBC

Pound Sterling (GBP) initially surged following the Bank of England’s (BoE) 25bp rate cut to 3.75%, but gains later eased as markets digested the less dovish-than-expected guidance. Governor Bailey emphasized that further easing will be gradual and data-dependent, prompting traders to slightly trim expectations for next year’s cuts. Technicals show a rising wedge forming, leaving room for potential near-term downside. Pair was last at 1.3371 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

Markets trim eate cut bets to ~39bps for 2026

"GBP erased earlier drop post BOE outcome. While MPC voted 5-4 to cut rate by 25bp as widely expected, the rhetoric was less dovish than markets have expected. Accompanying statement noted that 'On the basis of the current evidence, Bank Rate is likely to continue on a gradual downward path. But judgements around further policy easing will become a closer call'."

"BOE Governor Bailey said 'While I see scope for some additional policy easing, the path for Bank Rate cannot be pre-judged with precision, recognizing in part the more limited space as Bank Rate approaches a neutral rate. We still think rates are on a gradual path downward. But with every cut we make, how much further we go becomes a closer call'. Markets have also slightly trimmed rate cut bets next year to about 39bps."

"GBP jumped post decision outcome but subsequently also pared back gains. Bullish momentum on daily chart intact but shows tentative signs of fading while RSI eased lower. Rising wedge pattern appears to be forming – typically associated with bearish reversal. Some downside risk is not ruled out. Support at 1.3350 (200 DMA, 23.6% fibo retracement of Nov low to Dec high), 1.3290 (21 DMA, 38.2% fibo) and 1.3255 (50 DMA). Resistance at 1.3460 (Dec high), 1.35 levels."