GBP/USD Eyes 1.3385 as Bullish Momentum Builds Ahead of BoE Rate Cut
The pound is struggling to build on Friday’s bounce as traders wait for Thursday’s Bank of England meeting...
Quick overview
- The pound is struggling to maintain gains as traders await the Bank of England's meeting on Thursday.
- A 25bps rate cut to 4% is expected from the BoE, but cautious forward guidance is crucial due to persistent inflation.
- In the US, the dollar remains steady following disappointing job growth, with traders anticipating a potential Fed rate cut in September.
- GBP/USD is attempting to break above key resistance levels, with bullish momentum if it surpasses 1.3296.
The pound is struggling to build on Friday’s bounce as traders wait for Thursday’s Bank of England meeting. After rebounding from a multi-month low of 1.3140, GBP/USD is currently trading around 1.3265-1.3270, down on the day but still within striking distance of resistance.
Sentiment is mixed as investors weigh two opposing forces: a weakening UK labour market and persistent inflation. The BoE is expected to cut by 25bps to 4% but will likely be cautious given inflation is above target. The decision and tone will be key for the pound’s next move.
In the US, the dollar is steady after last Friday’s disappointing Nonfarm Payrolls which showed just 73,000 new jobs in July and big downward revisions for May and June. Traders now see a strong chance of a Fed rate cut in September. Political drama has also emerged with President Trump attacking Fed Chair Jerome Powell and demanding lower rates – raising questions about the central bank’s independence.
BoE Rate Cut Expected, But Forward Guidance Matters
A 25bps rate cut from the BoE is widely expected but the bigger story is the forward guidance. Labour market is softening faster than expected but sticky core inflation leaves little room for aggressive easing.
Here’s what to watch:
- Expected cut: 4.25% to 4.00%
- Wage growth: Cooling quicker than forecast
- Inflation: Still above 2% target
- BoE tone: Likely cautious, data dependent
The pound will react more to the BoE’s inflation outlook and rate path than the cut itself.
Technical Outlook: GBP/USD Breakout in Progress
On the 2-hour chart, GBP/USD is attempting to break above the 50 period SMA at 1.3274 after forming a series of higher lows since bouncing from 1.3140. This is buying pressure, immediate resistance is at 1.3296.
- RSI is at 57.8, still below overbought.
- A close above 1.3296 would likely trigger a move to 1.3340 and possibly 1.3385, where stronger supply zones are.* Below: 1.3274 (SMA), 1.3224, 1.3185
If above the 50-SMA and higher lows, bullish. If fails 1.3296, selling towards 1.32s.
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