Central Banks Unlikely to Follow Fed’s Lead in Interest Rate Cuts

According to Bank of New York Mellon’s analysis, the Bank of England⁣ and the European Central ‍Bank are not expected to follow the Federal Reserve’s drastic 50 basis point ‌interest rate cut. Instead, they will ​focus on⁢ addressing domestic issues, indicating that other central⁢ banks will not ⁢simply follow the Fed’s lead.

The probability of a⁣ 50 basis point rate cut by the Federal Reserve has increased to 60%, up from 30% last week. Historically, central banks worldwide have followed the Federal Reserve’s lead​ in ⁢formulating their policies to minimize idiosyncratic risks and protect the ⁢world’s most important financial institutions.

Geoffrey Yu, an economist at Bank of New York Mellon, stated, “Under normal circumstances, ‌other major economies should⁢ continue to ⁢implement accommodative policies, hoping to stimulate the economy by lowering interest rates and ensuring that their currencies do not rise too high ‍against‍ the dollar to avoid hurting exports.” However, he noted that it is no longer certain whether peers will passively follow the Fed’s lead.

Yu added, “Last week’s ECB decision is ⁤an example: from all accounts, the ECB’s inclination‍ is to continue to adopt restrictive policies, ‍even hawkish policies. The ECB is clearly unable to get ‌rid of the idea of ‘hawkish rate cuts’. Similarly, the Bank of England is expected to remain relatively cautious ‌in its decision this week.”

The forecast comes ahead of Thursday’s ⁣Bank of England rate decision, ⁢which is expected to remain at 5.0%. However, the market expects the next rate cut to ⁤come in October or November. The ECB announced a⁢ 25 basis⁤ point rate cut on September⁣ 12, and the next decision will be held on October 17.

ING analyst Francesco Pesole ​predicted that the pound could strengthen as the Bank of England is‌ unlikely to cut interest rates this week. Pesole stated that the UK ‌economic data hindered the market’s expectations of the​ Bank of England to cut interest rates as sharply as the‌ Federal Reserve, ⁢which means ⁣that the⁣ pound may⁤ continue to rise against the‍ dollar.

Pesole ​also⁢ noted that the divergence between the economic growth prospects of the euro zone and the UK is beneficial ⁣to the pound against the euro. Although the pound is starting to look relatively expensive, the euro against the pound may not continue to rise to 0.85 unless the Bank of England sends a strong hint of further ​rate cuts.

Lee ⁢Hardman, an analyst at ⁢MUFG, said any pullback in sterling against⁤ the dollar this week could⁣ be a short-term buying opportunity as the Bank of England is expected ⁢to cut interest rates more slowly than​ the Federal Reserve.

GBP/USD Daily Chart

At 10:30 on September 12, Beijing time,‍ the pound sterling against the ​US dollar was 1.3204/05.