On Wednesday, GBP/USD was initially holding its ground around 1.355, but it eventually broke down. The decline began around the European Open, gathering speed throughout the New York session, reaching a low near 1.3460 just after 6 PM GMT, and closing around 1.3480. Three key reasons contributed to this drop. First, Donald Trump’s pointed “No more Mr. Nice Guy” social media post, made around 08:00 GMT, pushed Brent crude prices above $110 per barrel, enhancing the safe-haven appeal of the US dollar (USD). Then the Fed kept its interest rates steady at 3.5% to 3.75%, which was widely expected. However, the Federal Open Market Committee (FOMC) vote was the most divided since 1992. Finally, Fed Chair Jerome Powell’s press conference led to a rise in the 10-year Treasury yield to over 4.4%. The outlook for Cable seemed heavy as Thursday approached.
A 90-minute window that defines a day
Thursday’s agenda looks like it’s set to stir things up. The Bank of England (BoE) is set to announce its interest rate decision at 11:00 GMT, with minutes, a monetary policy report, and an MPC vote breakdown also due. Following that, BoE Governor Andrew Bailey is to speak at 11:30 PM Japan time. Then, just an hour later, the U.S. will release several key reports, including the March Personal Consumption Expenditure Price Index (PCE), preliminary Q1 GDP, the first quarter employment cost index, and weekly jobless claims all within the same hour. The Chicago Purchasing Managers Index (PMI) will be released at 13:45 PM Japan time. It’s a lot of information, and the two central banks, as well as the data, could certainly create some volatility.
How hawkish is enough for Sterling?
The consensus within the central bank leans towards keeping rates unchanged at 3.75%, with only one outlier suggesting a hike. Currently, the market is pricing in around 60 basis points of tightening from the BoE by year-end, affecting sentiment. HSBC raised concerns this week that a split over hawkishness might emerge, but given that there’s already substantial tightening reflected in the curve, the pound might struggle to bounce back. A significant point of interest will be how the BoE tackles the issue of stagflation. A Reuters poll indicated that 17 out of 22 economists see a high or very high risk of stagflation in the UK, with energy market shocks likely worsening the situation. If Governor Bailey’s comments lean towards inflationary risks, the pound could stabilize. However, if he emphasizes slower growth while downplaying the rate hike advocates, GBP/USD might dip back to the 1.346 area.
US PCE can decide for everyone
The 12:30 GMT data drop in the U.S. is pivotal for the latter part of the day. The composite PCE is anticipated to rise to 3.5% year-over-year from 2.8%. Core PCE is predicted to increase to 3.2% from 3.0%. Q1 GDP is clocking in at an expected annual rate of 2.3%, a notable spike from 0.5% previously. If the employment cost index for Q1 is 0.8%, that could reinforce wage stagnation concerns. The FOMC officials who opposed the last meeting are now starting to look like they know what they’re talking about. This suggests that the dollar could strengthen, pushing GBP/USD to test the 1.346 area, leaning towards the recent lows in the low 1.34s. However, if data misses expectations, it could allow for a bounce back towards 1.350, even though the situation with Iran might limit that rebound.
Friday is quiet, but not quiet
The calendar for Friday isn’t packed but still has some important updates. The Institute for Supply Management Manufacturing PMI, set to release at 2:00 GMT, has a consensus reading of 53. However, the Prices Paid sub-index is projected at 80, which would signal ongoing inflation if that figure holds. BOE Chief Economist Hugh Pill is scheduled to speak at 11:15 GMT, and his views are noteworthy. He has historically been more hawkish on inflation than Governor Bailey. If data aligns with Thursday’s trends, GBP/USD’s range-bound theory may start to show signs of breaking down.
Both central banks are stuck in the same trap
If we look beyond the data, a clearer picture starts to emerge. The BoE and the Fed are facing similar challenges but from different sides: an energy supply shock driven by Iran that has pushed up short-term inflation without aiding growth. ING noted earlier this month that GBP/USD is expected to fluctuate within the 1.33-1.36 range, influenced by Middle Eastern developments leading into the BoE’s June meeting. The daily chart seems to support this view; the pair hit a low around 1.316 in early April, then bounced back over 1.357 mid-month, and is now hovering around the lower end of that range. As long as the Strait of Hormuz blockade continues and both central banks remain in a holding pattern, a similar outcome is likely.
Answer Thursday questions
By 13:00 GMT on Thursday, traders will gain more clarity on whether there’s more hawkish sentiment among central bankers, if U.S. inflation is picking up again, and whether these elements will be enough to push GBP/USD beyond the current 1.34-1.36 range. The momentum is shifting into new daily candles, the macro backdrop favors the dollar, and it looks like the path of least resistance might be downward. However, the Cable Bear has been wrong in every attempt to decisively break 1.346 this month. Thursday’s direction will depend significantly on which central banker falters first.
GBP/USD 15-minute chart
Looking at the 15-minute chart, GBP/USD is currently trading at 1.3481, below the opening price of 1.3526, suggesting a moderate bearish intraday bias. The stochastic RSI has been towards the upper end but indicates that any upward attempts might face resistance before making significant progress.
The opening price of 1.3526 stands as the first key resistance level, which needs to be broken to alleviate the current downward pressure for a more sustained recovery. Without clear support levels from moving averages or structural markers, price activity around 1.3481 will likely determine the next directional movement. If it fails to reclaim 1.3526, it is likely to focus on consolidation or further declines.
On the daily chart, GBP/USD is also at 1.3481, sitting above both the 50-day exponential moving average (EMA) at 1.3441 and the 200-day EMA at 1.3384. This setup maintains a short-term constructive bias and indicates that the broader uptrend remains intact despite recent consolidations. The Stochastic RSI value near 55.0 reflects a slight easing from previous overbought readings, suggesting that while upward momentum has slowed, it hasn’t reversed yet.
Looking downwards, initial support appears at the 50-day EMA around 1.3441. If selling pressure continues, the 200-day EMA offers a deeper structural support at 1.3384. As long as the price stays above these moving averages, any pullback is likely viewed as a correction in an ongoing bullish trend. But a close below the 200-day EMA would certainly undermine the current positive outlook.
