Pound Sterling remains mostly steady ahead of BoE decision

• The pound is expected to trade steadily prior to the Bank of England’s (BOE) financial policy announcement at 11:00 GMT.
• Analysts are anticipating that the BOE will lower interest rates by 25 basis points, reducing them to 4%.
• With increasing worries about the labor market, the growing consensus among Federal Reserve officials may influence rate cuts this year.

Pound Sterling (GBP) has remained relatively stable against major currencies this Thursday, as traders await the BOE’s interest rate decision at 11:00 GMT. It’s almost fully expected that the BOE will enact a 25 basis point cut, bringing rates down to 4%. This would represent the fifth interest rate decrease since the financial expansion began in August 2024.

This anticipated decision seems to be fueling bearish strategies among traders, especially as business owners are reducing their workforce to cope with increased employer contributions to social security. Recently, Prime Minister Rachel Reeves indicated that contributions to national insurance (NI) would jump to 15%.

Investors are keenly focused on the monetary policy statement and Governor Andrew Bailey’s press conference, eager to see if the UK central bank will stick to its “gradual and prudent” approach to easing currency policy.

An economist at Pantheon Macroeconomics noted last week, “It appears likely we will see one cut next week,” as inflation in the UK is projected to exceed the BOE’s target of 2% by 2026-2027.

Price pressures remain a concern in the UK, driven by rising energy and food costs, which are expected to escalate further as Labour proposes an increase in welfare spending. Data from the UK Institute for Finance (IFS) suggests that changes to the welfare bill could inject £5.5 billion into the economy by 2029-30.

Market Update: Pound Sterling rises against US Dollar

• The pound has climbed to nearly 1.3380 against the US dollar (USD) in Thursday’s European session, benefiting from the recent weakness of the USD.
• As of this writing, the US Dollar Index (DXY), which measures the dollar against six major currencies, hovered around 98.20, maintaining its losses from Wednesday.
• On Wednesday, various Federal Reserve officials, such as Minneapolis President Neil Kashkari and San Francisco President Mary Daly, expressed support for lowering interest rates due to concerns about the labor market and the economy.
• Kashkari said in a CNBC interview, “The economy is slowing, and the Fed needs to act accordingly. Rate adjustments may still be relevant soon, and two rate cuts this year appear appropriate.” When asked about the potential impact of tariffs on interest rates, he acknowledged that if inflation rises due to tariffs, the Fed might need to pause or even raise rates.
• Fed officials have been increasingly concerned about the labor market since the non-farm payroll report released in July.
• Reviewing forecasts, participants in the CME FedWatch tool are largely anticipating a 25 basis point cut in September, which would lower borrowing rates to between 4.00%-4.25%.
• Globally, tariff-related fears have resurfaced following the US President’s announcement of a 100% additional duty on all semiconductor imports.

Technical Analysis: Pound Sterling aims for 20-day EMA recovery

Pound Sterling has extended its upward momentum, climbing toward 1.3380 against the US dollar on Thursday. The GBP/USD pair is approaching the critical resistance from the head and shoulders chart pattern near 1.3376. The aim is to revisit the 20-day Exponential Moving Average (EMA).

The 14-day relative strength index (RSI) has recovered from a range of 20.00-40.00 to now lie between 40.00-60.00, suggesting that bearish momentum might be waning. Yet, the bearish sentiment isn’t completely washed away.

Looking downward, the May 12 low at 1.3140 will act as significant support, while the July 23 high of approximately 1.3585 stands as a key barrier.

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