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The British pound rose as much as 0.70% today but has given up almost all of these gains. In the North American session, GBP/USD is trading at 1.2560, down 0.10% on the day at the time of writing.

BoE stays on the sidelines, says cuts will be ‘gradual’

The Bank of England joined the parade of central bank rate announcements earlier today. As was widely expected, the BoE maintained the cash rate at 4.75%, after cutting rates by a quarter-point last month.

The BoE monetary policy summary was dovish as members raised concern about inflation and weak growth. Members noted that inflation jumped to 2.6% in November from 1.7% in September and that headline inflation was expected to continue to rise in the near term. The summary stated that most economic indicators had declined and growth was expected to be weaker at the end of  the year than in the November forecast.

Most importantly, the summary stated that policy would need to remain restrictive until the risks of inflation moving higher had eased and that the central bank would take a “gradual” approach to easing policy.

The Monetary Policy Committee vote was a surprise, as six members voted to hold rates, while three  members advocated a quarter-point cut. The market had expected only one member would vote to lower rates. The 6-3 vote indicates that pressure is growing within the MPC for a rate cut and the markets are currently pricing a 50% chance of a cut at the next meeting in February.

The Federal Reserve's quarter-point rate cut on Wednesday was widely expected but the market was surprised by the Fed's updated rate-cut forecast. In September, the Fed projected four rate cuts in 2025 but this was halved to just two cuts at the Wednesday meeting. US stock markets were sharply lower in response but the US dollar shined and rose sharply on Wednesday against all the major currencies, including over 1% against the US dollar.

After the meeting, Fed Chair Powell said he was "very optimistic" about the strength of the US economy but he was less positive about inflation, which has stalled above the Fed's 2% target. Powell said, "We have been moving sideways on 12-month inflation", a possible sign that the Fed may take a pause from trimming rates until inflation resumes its downswing.

GBP/USD Technical

• GBP/USD tested resistance at 1.2621 earlier. Above, there is resistance at 1.2679


• 1.2513 and 1.2455 are the next support levels