Investing.com – The Federal Reserve has started its easing cycle with a 50 basis point cut, while the Bank of England is on a more gradual easing path. This difference should continue to fuel GBP/USD positive carry flows, UBS said.
At 08:35 ET (12:35 GMT), it was down 0.2% at 1.3382, but the pair was up about 1.3% over the past week.
The Federal Reserve’s easing cycle finally started at its September meeting with a 50 basis point cut, and will likely continue through 2025. The Fed’s dot chart shows a total of another 50 basis points of cuts over the remaining two meetings of the year.
On the other hand, British inflation has proven more persistent than policymakers had hoped. Therefore, compared to the Fed, the Bank of England is likely to follow a much more gradual easing path.
“With the Fed starting its easing cycle later than most other G10 central banks and from a higher starting point, we expect it to cut rates more sharply in the coming months and quarters, especially versus the Bank of England,” analysts said from UBS. , in a note dated September 24.
That should reduce the USD’s yield advantage, which has been a supportive factor for the currency in recent years, the bank added.
“As a result, we expect some of the current overvaluation of the USD to dissipate in the coming months and quarters.”
“While short-term headwinds are possible following the recent rally, we believe the pair will continue to gain support and forecast a rise to 1.38 by the end of September 2025,” UBS added.
