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The Bank of England's decision comes to fruition, and the pound plummets! FTSE 100 leads decline as traders focus on Bailey's trump card

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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Market www.xmserving.commentary]: The Bank of England's resolution is implemented, the pound plummets! The FTSE 100 leads the decline, traders keep a close eye on Bailey's "trump card"". Hope this helps you! The original content is as follows:

On Thursday (November 6), at 20:00 Beijing time, the Bank of England announced the latest monetary policy resolution. The Monetary Policy www.xmserving.committee decided with a slim majority of 5 votes in favor and 4 votes against to keep the benchmark interest rate unchanged at 4.0%. Although this result was in line with general market expectations, internal voting differences increased, and Governor Bailey emphasized a "gradual downward path" in his subsequent speech, leaving room for imagination for future policy shifts. The monetary policy report released at the same time as the resolution showed that the Bank of England judged that inflation had reached a peak of 3.8% in September and was expected to fall below the 2% target in the second quarter of 2027, but emphasized that more data is still needed to confirm its sustainability. Against the background of the slowdown in the pace of global economic recovery, this resolution became a key window to observe the direction of the Bank of England's policy. The market responded quickly and showed differentiation.

The current market environment is still constrained by multiple factors. Entering November, the world's major economies are generally facing the dual pressures of high inflation and weak growth. The Bank of England's decision-making not only reflects domestic economic conditions, but is also indirectly affected by international energy price fluctuations and geopolitical factors. The UK consumer price index was flat at 3.8% in September, the highest among the G7, but the job market has shown signs of cooling: job vacancies have decreased and employment growth has stagnated, which provides basis for the dovish view of the Monetary Policy www.xmserving.committee. Before the resolution, market pricing indicated about a one-third chance of a 25 basis point rate cut, partly due to recent signs of slowing wage growth and weak demand. However, the Bank of England also pointed out that if administrative prices rise again or corporate profit margins expand, inflation may remain high, which makes the decision to maintain interest rates more prudent. Overall, this time on hold marks the first pause in the Bank of England's gradual easing cycle launched in August 2024, highlighting its difficult balance between curbing inflation and supporting the economy.

After the announcement of the resolution, the market’s immediate reaction showed obvious risk aversion. Just after 12:00 London time, the pound-dollar exchange rate fell 24 points in the short term, hitting a low of 1.3071, about 0.2% lower than the high before the decision. The fluctuation was mainly due to a more hawkish vote than expected - four members supported an immediate 25 basis point interest rate cut, higher than the three expected in a Reuters poll. Meanwhile, Britain's FTSE 100 fell 0.23%, led by losses in the financial sector, with energy and pharmaceutical stocks also selling off. The bond market is equally sensitive, with the 2-year UK government bond yield falling 2 basis points to 3.79%, reflecting rising investor expectations for future easing policies. In contrast, U.S. stock futures had limited fluctuations during the Asia-Europe session, with Dow Jones futures slightly down 0.1%, indicating weak transatlantic market linkage, but some safe-haven funds have flowed to gold and Japanese yen assets.

Before and after the resolution was announced, trader sentiment fluctuated significantly. Before the announcement, the overall market was cautiously optimistic: most institutions expected that the probability of interest rates remaining unchanged was about 70%, and pointed out that the upcoming budget may bring fiscal tightening risks, which may delay interest rate cuts; retail investors are more concerned about employment data, and some traders believe that if the unemployment rate rises to 5%, the dovish stance will prevail. For example, a foreign exchange analyst pointed out before the resolution: "The Bank of England faces a difficult choice. The market only prices a 30% probability of an interest rate cut, but flat inflation may become a turning point." This judgment is consistent with the continuity of the Bank of England's August report, when the Monetary Policy www.xmserving.committee had raised its 2025 economic growth forecast to 1.25%.

Trader sentiment changed rapidly after the data was released. Institutional interpretations tend to be professionally restrained, focusing on the impact of voting differences on policy paths. A macro data tracking agency pointed out: "The Monetary Policy www.xmserving.committee maintained interest rates at 5 to 4. The hawkish tendency initially boosted the pound, but Bailey's statement of 'needing more evidence' may strengthen expectations for an interest rate cut in December." Another agency believes that the monetary policy report on demand The emphasis on the risks of soft demand - such as the failure of household savings to be converted into consumption - has lowered the risk of upward inflation from "significant" to "balanced", which is consistent with the reduction in one-year inflation expectations from 2.7% to 2.5% in the August forecast, which logically supports gradual easing. Retail reaction was more emotional, with many traders expressing disappointment. A retail trader said: "I thought that interest rates would be cut if the employment data weakened, but it seems that we have to wait for a while at the 4% level." Overall, trader sentiment shifted from "expectations maintained but hoping for surprises" to "maintained confirmation but disagreements intensified," reflecting investors' high sensitivity to policy uncertainty. Overall, the market consensus is that although no action has been taken in this resolution, it has anchored the interest rate path at 3.9% in the fourth quarter of 2025 and 3.5% in 2026, which is basically consistent with the August forecast, and at the same time, BaileySaid "fair description" leaves room for adjustment.

From a fundamental perspective, this resolution is particularly critical in anchoring expectations for interest rate cuts. Bailey reiterated: "We still believe that interest rates are on a gradual downward path, but we need to ensure that inflation returns to the 2% track." This statement is more dovish than the "gradual caution" in September. www.xmserving.combined with the assessment of economic activity in the monetary policy report - UK GDP is below potential levels, with quarter-on-quarter growth of only 0.2% in the third quarter of 2025, lower than the 0.4% forecast in September - it shows that the Monetary Policy www.xmserving.committee has prioritized downside risks to demand. The private sector regular wage growth forecast is lowered to 3.5% in the fourth quarter of 2025, lower than the 3.75% forecast in August, and the unemployment rate is expected to be raised to 5.0%. These adjustments are logically derived from the dual signals of a cooling labor market and persistent weakening of inflation. www.xmserving.compared with history, when inflation soared to 11% in October 2022, the Bank of England was forced to radically raise interest rates to the peak; now, the judgment that inflation has peaked confirms that the policy is shifting from tightening to observation, similar to the "pause-evaluation" mode after the first interest rate cut in August 2024. Still, potential upside risks remain: If administrative prices (such as energy tariffs) push up costs again, or corporate profit margins expand, inflation could go off track. This echoes the logic of the Federal Reserve's recent insistence on "higher and longer" interest rate stance. Although not directly linked, it strengthens expectations for policy coordination among global central banks.

Changes in trader sentiment further amplify the transmission of these fundamental signals. Before the resolution, derivatives pricing showed that investors were relatively conservative in their bets on interest rate cuts, with about 60% probability pointing to action in December; after the announcement, this probability quickly rose to more than 70%, and the pound's implied volatility briefly increased by 15%. Institutional analysts mostly attribute this to Bailey's statement of "the value of waiting for further evidence" - which not only responds to the recent expected fall in inflation and employment data from October to November, but also indirectly alleviates the possible drag on growth caused by the budget through an increase in tax burdens. At the retail level, sentiment has shifted from optimism to wait-and-see. One trader concluded: "The 5-4 vote, coupled with Bailey's swaying tone - the pound is weak in the short term, but the door to interest rate cuts has been opened in the long term." This divided sentiment has contributed to immediate market fluctuations: although the pound has bottomed out, it is generally constrained near the 1.31 mark, reflecting concerns about fiscal austerity. From a technical point of view, the daily chart of GBP/USD formed a short-term lower shadow after the resolution, suggesting that there was buying intervention at low levels, but the relative strength index fell back from the overbought zone to 55, indicating neutral momentum. A historical review shows that after the interest rate cut in August 2024, the pound rebounded from 1.27 to 1.32, which is logically due to the fulfillment of expectations; the current disagreements under maintaining interest rates are similar to the "hawkish pause" in November 2023, when the exchange rate fluctuated in the 1.25-1.28 range for about three weeks.

Looking forward to the future, the gradual nature of the Bank of England's policy will become the main line of the market. If data from October to November continues to show economic cooling, the Monetary Policy www.xmserving.committee will cut interest rates at its mid-December meeting.The probability will rise further, and the benchmark interest rate may enter a new range of 3.75%, which is broadly consistent with the market’s expected interest rate path of 3.5% by the end of 2026. In the long term, inflation will stabilize at 2.0%-2.1% from 2027 to 2028, and economic growth will rebound to 1.6%-1.8%, which will mark the transition of the British economy from "below potential levels" to a balanced recovery. However, external variables cannot be ignored: the energy premium transmission caused by the Russia-Ukraine conflict and the knock-on effect of weak global demand may amplify downside risks. www.xmserving.compared with historical cycles, this resolution is closer to the "soft landing" model of epidemic recovery after 2020 - not a radical turn, but a fine-tuning based on data. Investors should remain vigilant and pay attention to fiscal signals after the budget to grasp the transition from short-term fluctuations to medium- and long-term easing logic. Overall, the Bank of England's cautious stance has injected stability into the market and helped the British economy move forward steadily amid uncertainty.

The above content is all about "[XM Foreign Exchange Market www.xmserving.commentary]: The Bank of England's decision was implemented, and the pound plummeted! The FTSE 100 led the decline, and traders focused on Bailey's "trump card"". It was carefully www.xmserving.compiled and edited by the XM foreign exchange editor. I hope it will be helpful to your trading! Thanks for the support!

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The Bank of England's decision comes to fruition, and the pound plummets! FTSE 100 leads decline as traders focus on Bailey's trump card

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The Bank of England's decision comes to fruition, and the pound plummets! FTSE 100 leads decline as traders focus on Bailey's trump card

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