Market round-up: BoE & BoJ hold, Fed delivers ‘hawkish’ cut

• BoE keeps ‘gradual’ cut prospects alive

• Dovish BoJ sends Yen into intervention zone

• Fed signals slower pace of cuts in 2025

Sterling slipped on Thursday after the Bank of England kept rates unchanged.

Prices dipped toward 1.2600 as investors reacted to three officials voting for an immediate reduction.

The Bank of England voted 6-3 to cut interest rates by a quarter point to 4.75% today.

Overall, the central bank adopted a dovish tone – signaling gradual easing in 2025. However, it flagged geopolitical and trade risks with Trump’s return to the White House.

Still, traders are now pricing in a 73% probability of a 25-basis point cut by February 2025.

Looking at the charts, the GBPUSD remains bearish with 1.2500 the next level of interest.

Fed’s ‘hawkish’ cut slams markets

Equities tumbled, the dollar surged, and gold tanked despite the Fed cutting rates by 25 basis points on Wednesday.

Investors were more concerned about the hawkish messaging which signalled a slower pace of Fed cuts in 2025.

Fed Chair Jerome Powell stated that the 2024 inflation forecast had “kind of fallen apart” with officials now seeing inflation at 2.5% at the end of 2025.

What does this mean?

The updated dot plot implies another 50 bps of rate cuts in 2025 compared to the 100 bps in the September dot plot.

So essentially, the Fed sees only two rate cuts in 2025.

And markets reactive aggressively to the Fed’s new projected path:

• US500 fell as much as 3.5%

• Gold tumbled over 2%

• USInd surged over 1% to a fresh 2-yr high.

Traders are now expecting only a 50% chance of a 25bp Fed cut by March 2025 with this jumping to 94% by June 2025.

Expectations around slower Fed rate cuts are likely to set the tone for markets for the rest of 2024.

Yen rallies on dovish BoJ

The USDJPY has jumped roughly 400 pips this week thanks to a hawkish Fed and dovish BoJ.

BoJ rates were left unchanged as expected but Ueda’s dovish commentary surprised markets.

He stated that more information on Japan wages and Trump’s policies was needed before the BoJ could decide on a rate hike path.

This dented expectations around the BoJ hiking interest rates next month. Traders are now seeing a less than 50% probability of a January 2025 hike.

The Yen weakened further on this development, already battered by a hawkish Fed in the previous session.

Looking at the charts, the technical bullish levels discussed in our week ahead report were hit with prices back within intervention zones.