The British pound is higher on Tuesday. In the North American session, GBP/USD is trading at 1.2650, up 0.43%.

Is Bailey turning dovish?

With little else on the calendar today, Bank of England Governor Andrew Bailey is front and center. Bailey testified earlier before Parliament’s Treasury Committee and was surprisingly open about possible rate cuts later this year. Bailey did not push back against market expectations and said that the BoE could cut rates even if inflation remained about the 2% target.

Up to this point, Bailey has pushed back against market expectations of a rate cut and today’s comments could signal a major pivot in the Bank’s rate policy. Bailey said that the market curve, which is projecting rate cuts, was “not unreasonable”. The BoE has kept rates unchanged since August and there is pressure on the central bank to provide some relief to households and businesses and lower rates.

Bailey’s dovish comments to lawmakers could be an attempt to put a positive spin on the weak UK economy, especially after last week’s GDP report indicated that the UK economy tipped into a recession in the second half of 2023. Bailey told lawmakers that the data indicated that this was a “very weak recession” and that here were “distinct signs of an upturn”.

Still, Bailey’s acknowledgment that rate cuts may be coming is a significant pivot and market pricing on interest rate cuts was brought forward after Bailey’s testimony. Currently, the markets are predicting a first rate cut in August, with two more cuts before the end of the year.

GBP/USD Technical

• GBP/USD tested resistance at 1.2607 earlier. Above, there is resistance at 1.2679
• 1.2607 and 1.2530 are providing support

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at [email protected]. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.