- Pound Sterling is projected to rise against the US dollar just before the Federal Reserve and Bank of England’s monetary policy announcements later this week.
- The Federal Reserve is likely to maintain interest rates, while the Bank of England is expected to reduce borrowing costs by 25 basis points.
- Ongoing uncertainties in US-China trade relations are anticipated to persist.
Pound Sterling (GBP) is expected to show mixed performance in light trading conditions, as the UK market will close early this week for the early May holiday. Investors are largely responsible for the volatility impacting the UK currency, with the Bank of England (BOE) set to make its interest rate announcement on Thursday.
Bank of America analysts predict that the BOE will lower its borrowing rate to 4.25% by 25 basis points, with a significant majority favoring this move at 8-1. They also believe that Swati Dhingra, a member of the Monetary Policy Committee (MPC), may vote for a more substantial cut of 50 basis points.
Furthermore, BOFA indicates that factors such as Trump’s tariffs, the state’s improved inflation scenario, and possible economic risks related to lower energy prices justify a rate reduction. Looking ahead, the bank expects the BOE may cut interest rates further twice this year, in addition to the imminent decision on Thursday.
Globally, the ongoing uncertainty regarding US-China trade relations is pressuring the UK currency and assets. Statements made by the US president over the weekend suggest that the trade war with China is unlikely to resolve soon. Trump noted he won’t be speaking with Chinese President Xi Jinping this week, though he hinted that tariffs on Beijing imports could decrease first.
Market Update: Pound Sterling Gains Against the US Dollar
- The pound is set to consolidate around 1.3285 against the US dollar during European trading hours on Monday, recovering from a weekly low of approximately 1.3260 earlier that day. The movements in GBP/USD reflect the US dollar facing pressure ahead of the Federal Reserve’s monetary policy announcement.
- According to the CME FedWatch tool, the market has almost fully priced in a stabilization of interest rates in the 4.25% to 4.50% range. Consequently, guidance on financial policy from the Fed, particularly Chairman Jerome Powell, will be crucial for the remainder of the year.
- Fed officials have stated that adjustments to monetary policy will only be warranted if there are significant changes in the labor market or the economy. However, recent US non-farm payroll data indicate stronger job growth than anticipated, despite the impact of President Trump’s tariffs. Additionally, GDP data has not been as bad as initially perceived, largely due to an increase in imports.
- Consumer inflation expectations also represent an important reason for the Fed’s consideration against lowering interest rates, as rising input costs contribute to increasing price pressures.
- Meanwhile, Trump has voiced that the Fed ought to decrease interest rates. He highlighted recent drops in gasoline, grocery prices, and mortgage rates, stating, “There is no inflation, the Fed needs to lower that rate!” on his platform Truth.social.
- Trump has also minimized concerns about undermining the Fed’s independence, asserting he wouldn’t replace Chairman Powell. “Why would I do that?” he questioned in a recent NBC News interview.
Technical Analysis: Pound Sterling Stays Strong on Short-term EMAs
Pound Sterling is just above its weekly low of 1.3260 against the US dollar as of Monday, having been adjusted from a three-year high of 1.3445 last week. The outlook remains optimistic, with all short-term exponential moving averages (EMAs) trending upwards.
There’s an aim to exceed 60.00 on the 14-day relative strength index (RSI), with success here likely to spark new bullish momentum.
Importantly, a three-year high at 1.3445 presents a significant challenge, while the 1.3200 level from early April could act as an essential support region.
Upcoming Economic Indicators
BOE Interest Rate Decision
The Bank of England (BOE) will reveal its interest rate decisions during one of its regular meetings. A hawkish stance on inflation may result in a rate increase, which is generally favorable for Pound Sterling (GBP). Conversely, a dovish outlook or rate cuts could indicate bearish sentiments for the GBP.
Next release: May 8, 2025, at 11:00 AM
Frequency: Irregular
Consensus: 4.25%
Previous: 4.5%
