GBP/USD Stuck in Limbo as Oil Price Decline Scales Back Rate Hike Expectations
The GBP/USD exchange rate has been stuck in limbo as market expectations for a Bank of England (BoE) rate hike have scaled back following the decline in oil prices. The drop in oil prices, which fell to $100 per barrel after Donald Trump left open the possibility of a diplomatic solution with Iran and an increase in regional oil supplies added to the downward pressure on prices, has eased concerns about an immediate supply shortage.
According to Bank of England officials, the outlook for inflation and interest rates will largely depend on oil and gas prices in the coming months. Market estimates now put the probability of a BoE rate hike in November at around 80%, while another increase before year-end stands at approximately 56%. Attention is also shifting towards the UK autumn Budget, with reports suggesting that the government may extend the new property tax to homes worth more than $1.5 million.
The US dollar remains supported by expectations of further Federal Reserve rate increases, limiting the scope for a GBP/USD recovery. From a technical perspective, analysts expect the pair to move higher towards 1.3431 in the short term, followed by a decline towards 1.3390.