Sterling climbed to a new 2024 high of 1.3298 against the U.S. dollar following the Federal Reserve’s larger-than-expected 50 basis point (bps) rate cut on Wednesday. The pound was trading up 0.74% at 1.3259, reflecting the market's reaction to the Fed’s decision, with GBP/USD fluctuating between a daily range of 1.3298 and 1.3157. The sizable cut was widely anticipated, with futures markets having factored in a 60% probability of such a move, setting the stage for a notable response from traders.

The Federal Reserve's decision to reduce rates by 50bps stems from its increased confidence in controlling inflation. The central bank signaled the possibility of additional rate cuts, forecasting another 50bps reduction in 2024. However, there was some dissent within the Federal Open Market Committee (FOMC), with Fed Governor Michelle Bowman preferring a smaller rate cut, raising questions about the balance between inflation control and economic growth.

Attention now shifts to the Bank of England (BoE), with traders and investors speculating on its next policy move. The UK’s core CPI report released earlier today exceeded forecasts, which has led markets to trim the odds of a BoE rate cut to between 20% and 40%. While the decision remains uncertain, some market participants believe that the BoE may take a cue from the Fed and adopt a more aggressive stance in its upcoming meeting on Thursday.

Even amid the anticipation of a potential BoE easing cycle, the outlook for GBP/USD remains relatively bullish. The pound’s rate advantage is likely to persist, with the Fed expected to cut a total of 250bps by the end of 2025, compared to the BoE’s projected 186bps of cuts over the same period. This differential could continue to offer support for the pound, providing a cushion against potential downside risks as both central banks move toward more accommodative monetary policy.

On the technical front, GBP/USD finds support at 1.3228, which aligns with the 23.6% Fibonacci retracement of its recent rise from 1.3003 to 1.3298, while the session’s low of 1.3157 offers another layer of support. On the upside, the immediate resistance level remains at the post-Fed high of 1.3298, with further resistance at 1.3299 and 1.3437, key weekly highs last seen in early 2022.

As traders navigate the implications of the Fed’s aggressive rate cut, the focus will now be on the BoE’s response. Should the BoE opt for a more dovish approach, sterling could experience heightened volatility, but its broader upward trajectory may remain intact due to the ongoing rate differential between the two central banks. Investors will be keen to see how the BoE balances domestic inflation concerns with global monetary easing trends.