GBP/USD Forecast: Pound Holds Firm After BoE Keeps Rates at 3.75%, Eyes 1.3400 Break
The British pound rose against the US dollar on Thursday after the Bank of England decided to keep its base rate unchanged at 3.75%.
The British pound rose against the US dollar on Thursday after the Bank of England decided to keep its base rate unchanged at 3.75%. This decision was in line with the markets and showcases the central bank’s carefulness regarding inflation. The soft dollar helped GBP in staying supported with USD above the important levels of technical pressure. This came after the Fed kept the rates unchanged a day before.
The BoE believes, and the forecasts suggest, that inflation will experience a significant dip. The high prices of energy, due to the geopolitical unrest in the Middle East, will increase inflation again. There is now a combination of inflation, and an economy and labor market in a state of recession. The BoE now faces the problem of inflation vs recession.
The Bank of England’s MPC voted to keep the rate at 3.75% for the fifth meeting in a row.
This decision was on the back of the Bank’s Monetary Policy Report that has shown a significant dip in inflation. The UK consumer price index shows inflation rates of 2.6% in June, however, energy is expected to become more expensive and push inflation higher in the second half of 2026. The MPC believes that the current rate will ensure that the inflationary pressures, if any, will be temporary.
Officials noted that a more restrictive monetary policy weakens household spending and business investment. A more flexible labor market will likely prevent higher energy prices from producing broad-based wage and price inflation.
Market Thoughts on Further Comment from Governor Bailey
Market participants are focusing on the MPC vote split, along with upcoming inflation and growth forecasts, as the monetary policy forecast is already in the price following the rate decision. Andrew Bailey’s comments will also be watched for policy direction.
The market will assess whether the decision makers are keeping the door open for additional tightening if inflation persists, especially if geopolitically-driven energy price spikes also come into play.
Increased concern about inflation from the BoE would likely support the pound. The opposite would likely be true if a more dovish, growth-concerned approach is pursued.
https://www.bankofengland.co.uk/monetary-policy-report/2026/july-2026/
Fed Pause Continues to Pressure the Dollar
The pound also strengthened after the Federal Reserve chose to keep the target policy rate between 3.50 and 3.75. While three Federal Reserve policy makers were in favor of tightening, Fed Chair Kevin Warsh did not signal an imminent decision to tighten, which caused a September rate increase to be taken off the table, decreasing Treasury yields and strengthening the pound along with other major currencies.
The focus will be on the upcoming U.S. economic releases, especially the PCE deflator and second quarter GDP, as these may impact forecasts of U.S. monetary policy more than others.
Diverging Economic Views
UK inflation appears to be under control, but UK economic prospects remain weak. UK consumers and businesses remain under the pressure of high energy costs. This, paired with a slacking labor market and tightening financial conditions, suggests further weakness in UK economic prospects.
In contrast, the US economy is performing better with greater productivity and investment. This tilt in the economic balance is USD supportive in the medium term as the dollar has weakened recently on the back of FOMC comments.
With both central banks on hold, the main drivers of the GBP/USD rate will be divergence in economic data, inflation and central bank communications.
GBP/USD Technical Analysis: Key Support Bullish
GBP/USD is continuing its upward trend after testing and successfully bouncing off of the rising trendline at 1.3272, with buyers breaking the 50-period EMA at 1.3346, and the 200-period EMA at 1.3363. Renewed buying momentum was confirmed by a bullish engulfing candle, and the pattern of higher lows was maintained.
The next resistance level is at 1.3383, where prior price action has resulted in a pause. A break and close above this level will open price action to the 1.3438, 1.3481 and the July peak at near 1.3542.
Momentum indicators are bullish, with the RSI at approximately 62, indicating bullish momentum. The 50 and 200 period EMAs are converging and if price momentum continues, a bullish crossover of the EMAs is likely.
Resistance: 1.3383, 1.3438, 1.3481, 1.3542
Support: 1.3363, 1.3318, 1.3272
GBP/USD Outlook
The decision by the Bank of England (BOE) to keep rates on hold was largely expected. Therefore, the market was second guessing the BOE’s future inflation assessment and monetary policy signaling. The BOE stated that inflation was on a downward trend; however, they highlighted that the situation may be reversed by higher energy prices in the second half of the year.
GBP/USD is technically in a good position while trading above the 1.3346 – 1.3363 EMA support range. A break above 1.3383 would add to the bullish momentum with 1.3481 in the line of sight. A break below 1.3318 would indicate a loss of bullish momentum, and would likely target the ascending trendline support, which is at 1.3272.
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