- Investors are awaiting the BOE rate decision meeting.
- The Fed boosted rates by 25 basis points but gave the sense that it might stop there.
- Traders generally anticipate the Bank of England will increase rates by 25bps.
Today’s GBP/USD outlook is bullish. On Monday, the pound hovered near an 11-month high as traders awaited the Bank of England’s interest rate announcement.
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The pound benefited after last week’s US Federal Reserve meeting when the central bank boosted rates by 25 basis points but gave the sense that it might stop there.
In contrast, many observers believe that the Bank of England will need to keep hiking rates. This is because British inflation is significantly higher than American inflation.
Pricing in derivatives markets indicates that traders generally anticipate the Bank of England will increase rates by 25 basis points to 4.5% on Thursday. They see rates rising later in the year, peaking at about 4.8%.
When interest rates rise in one nation while being unchanged in another, investments in the former nation may appear more appealing, perhaps strengthening its currency.
In addition, Britain has largely avoided any negative effects from the failure of Silicon Valley Bank and the Swiss government-backed acquisition of Credit Suisse. That may have made the BoE hesitate before increasing borrowing prices once more.
Although the outlook is still bleak, most economists anticipate that the BoE will increase its growth estimate significantly. It might remove its previous prediction of a protracted, five-quarter recession.
The dollar has fallen against several other currencies due to the sudden slowdown in US inflation and the Fed’s impending pause.
GBP/USD key events today
There are no planned key economic releases from the US or the UK today. The pair might consolidate ahead of the BE meeting.
GBP/USD technical outlook: Weakness around 1.2650 resistance.
The bias for the pound in the 4-hour chart is bullish. The price is trading far above the 30-SMA, and the RSI points to strong bullish momentum above 50. After a strong move higher, the price paused at the 1.2650 resistance level.
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At this point, the price will likely pull back before breaking above the resistance. However, we might see a deeper pullback as the RSI has made a bearish divergence. This divergence indicates weakness in the uptrend. A deep pullback could retest the 1.2525 support level.
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Saqib Iqbal
