- Ahead of the Bank of England's announcement today, Thursday, the GBP/USD currency pair is attempting to maintain its upward rebound gains, which reached the 1.3400 resistance level before the pound/dollar price stabilized around the 1.3285 level at the time of writing this analysis.
- According to Forex market trading, market participants appeared cautious, avoiding any significant moves before the Bank of England's (BoE) widely anticipated interest rate announcement later this afternoon.
- However, Sterling trading found some support, buoyed by optimism surrounding the UK-India trade agreement, which lifted sentiment regarding the UK's economic prospects ahead of the central bank's upcoming decision.
Is the British Pound at Risk of a Rate Cut Today?
Forex market experts anticipate a surprise today, Thursday. The Bank of England's interest rate meeting is widely expected to result in a 25-basis point cut to 4.25%. However, some analysts see a possibility of a more aggressive move. Moreover, what has caught the attention of Bank of England watchers is the unusual number of Monetary Policy Committee (MPC) members scheduled to deliver speeches in the aftermath of the decision.
Typically, the speaker list is distributed over the following weeks. If the British central bank decides to cut the interest rate by 50 basis points, it will need to convey a strong message and narrative for this move. This is because such a cut would come against a backdrop of elevated inflation, pushing the bank further away from its 2.0% target. Therefore, a 50-basis point rate cut would risk its credibility and require policymakers to do some serious "marketing" of the decision.
Regarding currency prices and the British pound, a 50-basis point rate cut would be surprising and would initially lead to a sharp downward adjustment. The pound might soon recover its losses if financial markets perceive the 50-basis point rate cut as a pre-emptive move that reduces the need for further cuts later. This makes the possibility of a rate cut in June plausible and could explain the flurry of messages from MPC speakers in the following days.
More interest rate cuts, at a faster pace, would negatively impact the British pound.
According to some currency experts, "A more dovish update from the Bank of England could cause a setback after the pound's recent recovery, although the recent dovish repricing would cushion any sterling sell-off if there is a slight change in guidance." However, economists warn that the bank risks its reputation by trying to boost growth with rate cuts at the expense of its inflation responsibility.
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Keep in mind that the British pound still has strong factors, and any pullback could be opportunities for bargain hunters to buy.
For his part, Andrew Sentance, a former member of the Bank of England's Monetary Policy Committee, believes that now is not the right time to cut interest rates, as he expects inflation to rise to 4-5% in the coming months. Higher national insurance contributions for companies are considered a major driver of costs facing businesses, which are expected to be passed on to consumers. Meanwhile, food prices are expected to start rising again, ending a period of negative food price inflation that recently helped the Bank of England.
On the other hand, the British pound will receive support if the Bank of England continues to signal satisfaction with the pace of its current quarterly interest rate cuts. This comes amid continued declines in financial market volatility, as investors remain optimistic about the prospects for trade deals after "Liberation Day."
Technical Analysis for the GBP/USD pair today:
According to the performance on the daily timeframe chart, the GBP/USD trading has remained on its path to a bullish shift, and the 1.3400 resistance will remain a catalyst and confirmation of the bulls' strong control. According to the 14-day Relative Strength Index (RSI) reading around the 60 level, this confirms the upward shift but has not yet reached the overbought zone, and the MACD indicator for the 12.26 closing is still in the overbought zone. Over this time frame, a break of the upward trend will not occur without the bears moving the currency pair to the vicinity of the support levels of 1.3240 and 1.3180, respectively. Caution is advised, as if the pound does not gain momentum today, the GBP/USD pair may be subject to profit-taking selloffs.
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