The Bank of England (BoE) is set to announce its crucial interest rate decision at the end of one of its eight scheduled meetings this year. As anticipation builds, the Pound Sterling (GBP) has shown a modest increase against its major peers, particularly demonstrating strength against the Japanese Yen. Investors and traders are keenly focusing on Thursday’s decision, with expectations leaning towards the BoE maintaining borrowing rates steady at 4.5%, amid a 7-2 vote split among the BoE Monetary Policy Committee (MPC) members.
The long-term outlook for the GBP/USD pair remains optimistic. The pair has managed to hold above the 200-day Exponential Moving Average (EMA), which stands at approximately 1.2700, indicating a bullish trend. As the US Dollar Index (DXY) struggles to retain its value against six major currencies, currently hovering around a five-month low of 103.20, the GBP/USD pair continues to exhibit resilience.
Key Support and Resistance Levels
The GBP/USD pair is navigating through significant support and resistance levels, crucial for its long-term trajectory. The 50% Fibonacci retracement level at 1.2767 and the 38.2% Fibonacci retracement level at 1.2608 serve as vital support zones for the currency pair. These levels are pivotal in maintaining the bullish momentum that the pair currently enjoys.
Moreover, the GBP/USD has established itself above the 61.8% Fibonacci retracement level, plotted from the late September high to the mid-January low, at 1.2930. This further underscores the strength of the pair as it approaches the October 15 high of 1.3100, a key resistance zone that could test its upward momentum.
The 14-day Relative Strength Index (RSI), holding above 60.00, reinforces the current bullish sentiment surrounding the GBP/USD pair. This technical indicator suggests that strong buying interest persists, bolstering confidence among traders and investors.
BoE Policy Decision and Economic Outlook
As traders anticipate the BoE's interest rate decision, there is growing speculation that the central bank may opt for two rate cuts this year. This expectation follows the BoE's decision to halve its Gross Domestic Product (GDP) growth forecast for the year to 0.75% during its February policy meeting. Such a move would align with global economic trends and provide stimulus amid ongoing economic challenges.
BoE MPC members Catherine Mann and Swati Dhingra are expected to advocate for an interest rate cut, reflecting a cautious approach toward monetary policy in light of economic uncertainties. Additionally, investors will be closely monitoring the BoE's guidance on future monetary policy directions and assessing how external factors, such as the US President Donald Trump-led tariff war, may impact the United Kingdom's economic outlook.
In contrast, the Federal Reserve is expected to maintain interest rates in the range of 4.25%-4.50% for the second consecutive time, providing a point of stability in global financial markets.
Market Reactions and Future Implications
The foreign exchange market has reacted with cautious optimism ahead of the BoE decision. The British Pound's strength against major currencies, particularly against the Japanese Yen, reflects investor confidence in the UK's economic prospects despite prevailing global uncertainties.
The outcome of Thursday's meeting will have significant implications for the GBP/USD pair and broader market sentiment. Should the BoE choose to maintain rates, it may signal confidence in the current economic trajectory, supporting continued bullish momentum in the GBP/USD pair. Conversely, any deviation from expected policy actions could introduce volatility and prompt reevaluations of market positions.
Traders remain vigilant, balancing optimism with prudence as they navigate potential market shifts influenced by central bank decisions and geopolitical developments.