The Pound Sterling (GBP) slips below the psychological support of 1.2500 against the US Dollar (USD) in Wednesday’s early New York session. The GBP/USD pair faces a sell-off due to multiple headwinds, such a sharp recovery in the US Dollar and uncertainty ahead of the Bank of England’s (BoE) interest rate decision, which will be announced on Thursday.
Interest rates in the United Kingdom are expected to remain steady at 5.25% for the sixth time in a row. However, the BoE could turn slightly dovish on the interest rate outlook as policymakers are confident that the headline inflation could have returned to the desired rate of 2% in April, according to comments from BoE Governor Andrew Bailey in the annual Spring Meeting hosted by the International Monetary Fund (IMF) last month.
Financial markets anticipate that the BoE will start reducing interest rates from the June meeting. Traders price in 53 basis points (bps) of easing this year, implying at least two quarter-point cuts, having previously fully priced only one rate cut after inflation data last month showed prices slowed by less than expected in March, Reuters reported. The expectations for the same strengthened after Andrew Bailey said in the last monetary policy meeting that speculation for two or three rate cuts this year is reasonable.
The Pound Sterling falls slightly below the psychological support of 1.2500. The GBP/USD pair is under pressure after facing strong resistance above the neckline of the Head and Shoulder (H&S) chart pattern formed on a daily timeframe. On April 12, the pair suffered an intense sell-off after breaking below the neckline of the H&S pattern plotted from December 8 low around 1.2500.
Investors tend to turn cautious about the near-term outlook as the Cable fails to sustain above the 20-day Exponential Moving Average (EMA), which trades at around 1.2520.
The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, suggesting indecisiveness among market participants.
The Bank of England (BoE) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoE is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Pound Sterling (GBP). Likewise, if the BoE adopts a dovish view on the UK economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for GBP.
Next release: Thu May 09, 2024 11:00
Frequency: Irregular
Consensus: 5.25%
Previous: 5.25%
Source: Bank of England