- UK headline inflation returned to the 2% target for the first time in around three years.
- Economists expect the BoE’s first rate cut in August and at least two more this year.
- The probability of a Fed tapering in September is 67%.
The GBP/USD forecast shows downside potential as the pound declines ahead of the Bank of England’s policy meeting. Meanwhile, the dollar held steady as traders waited for more economic data to give clues about the path of US monetary policy.
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After the UK inflation report, investors are eagerly awaiting the BoE’s policy meeting. Although headline inflation has returned to the 2% target for the first time in around three years, underlying price pressures remain hot, causing expectations of a BoE rate cut to fall.
A Reuters poll on Wednesday showed economists expect the first rate cut in August and at least two more cuts this year. Policymakers have remained tight-lipped as the July 4 election approaches, so there have been few clues about the future of monetary policy in the UK.
However, seven policymakers voted to keep rates at the last meeting, while two were ready to cut. This time, analysts believe the vote distribution will either remain the same or be eight for retention and one for reduction.
Meanwhile, policymakers have forecast just one U.S. rate cut this year. However, economic data indicated the possibility of two cuts, which maintained expectations. The probability of a cut in September is 67 percent as inflation eases and the economy slows. Investors will focus on jobless claims today and PMI data on Friday to see if the downward trend continues.
GBP/USD key events today
- Summary of monetary policy
- MPC Official Bank Rate Votes
- BoE official bank rate
- US unemployment claims
GBP/USD Technical Forecast: Bears return as 30-SMA holds firm
On the technical side, the GBP/USD price is falling after failing to break the 30-SMA and 0.382 Fib level. This is a sign that the bears are still in the lead. As a result, the RSI fell back below 50 into bearish territory.
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With this decline, the bears reached the key support level of 1.2700. Given the bearish bias, GBP/USD could soon break below and target the 1.2600 level. However, if the level remains firm, the bulls could make another attempt at resistance at the 30-SMA.
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