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Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You could sustain a loss of some or all of your initial investment and should not invest money that you cannot afford to lose.

GBP/USD falls 1% after dovish Bank of England

Following Bank of England signals of potential rate cuts, GBP/USD dropped below 1.2700, falling over 100 pips. Inflation declines and UK's economic outlook could drive the pair to new lows, amid higher US rates.

Source: Bloomberg

Data current as of 3/21/2024

Key points

  • Pound falls below 1.2700 vs US dollar: (0:43)
  • Bank of England holds interest rates unchanged: (2:02)
  • Bank of England comments dovish: (2:40)
  • UK inflation fell more than expected: (4:31)
  • GBP/USD could fall further on UK weakness: (6:44)

Pound falls below 1.2700 vs US dollar

GBP/USD experienced a notable decline after the most recent BoE meeting, dropping over 1% in recent trade. After being comfortably above the 1.2800 mark in March, the British pound has now slipped below 1.2700 against the US dollar. This movement reflects shifts in trader sentiment and market dynamics, possibly influenced by economic forecasts and comparative interest rate evaluations between the UK and the US.

Bank of England holds interest rates unchanged

Despite prevailing economic pressures, the Bank of England opted to maintain UK interest rates above 5%, a decision highlighting their cautious approach amidst global financial uncertainties. With US interest rates still surpassing those in the UK, this policy stance places the GBP/USD pair under scrutiny, as traders assess the potential impact on currency value.

Bank of England comments dovish

Recent dovish comments from the Bank of England, hinting at possible future rate cuts, have contributed to the pound's downward trend. Such signals from the central bank are closely watched by traders, as both the UK and US anticipate rate cuts in 2024. Relative strength between economies may come down to which nation cuts first and be reflected in GBP/USD.

UK inflation fell more than expected

In a surprising turn, UK inflation rates have dropped more than anticipated, prompting the Bank of England to carefully monitor these developments for future interest rate decisions. Falling inflation could provide the BoE with more flexibility in adjusting monetary policy, potentially affecting the GBP/USD exchange rate as traders speculate on the implications.

GBP/USD could fall further on UK weakness

With UK economic indicators seemingly underperforming in comparison to those of the US, there's growing speculation that GBP/USD could reach new lows. Even with its recent decline, British pound has been relatively strong in 2024. Just last year, GBP/USD traded below 1.2100, giving precedent for a further decline in the pound. Such a scenario underscores the importance of analyzing economic data and its role in shaping forex market movements, offering traders insight into possible currency pair trends based on relative national economic strengths.

GBP/USD price history

Source: IG

How to trade US dollar

  1. Open an account to get started, or practice on a demo account
  2. Choose your forex trading platform
  3. Open, monitor, and close positions on USD pairs

Trading forex requires an account with a forex broker like IG. Many traders watch major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.

You can help develop your forex trading strategies using resources like IG’s YouTube channel. Our curated playlists can help you stay up to date on current markets and understanding key terms. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.

Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.

This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. See our Summary Conflicts Policy, available on our website.

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