The GBP/USD pair is currently seeking support near 1.3062 on Thursday, as investors take a measured approach ahead of the crucial Bank of England monetary policy meeting scheduled for today. The British currency is currently facing significant pressure, trading close to a seven-month low against the US dollar and reaching its weakest point in over two years against the euro. The current market pricing suggests there is approximately a one-in-three probability of a 25-basis-point rate reduction from the Bank of England. This uncertainty introduces considerable asymmetric risk, indicating that the pound is set for a pronounced shift in either direction following the announcement and the related statement.
The pound’s weakness was exacerbated by the recent release of softer-than-anticipated UK inflation data, which strengthened expectations for a forthcoming shift towards policy easing. A concurrent global sell-off in equity markets, especially within the tech sector, has exacerbated sentiment by diminishing the appetite for risk-sensitive assets like sterling. Compounding the challenges, investor attention is now turning towards the UK budget, which is set for approval later this month. Chancellor Rachel Reeves has indicated the possibility of tax increases, a move that could hinder economic growth and may lead the BoE to take a more dovish approach – an additional element impacting the currency.
GBP/USD has experienced a downward breakout from a consolidation range near 1.3140, culminating in a bearish movement towards 1.3010. We now foresee a technical correction towards 1.3090. After this pullback, it is anticipated that the main downtrend will continue, with the next significant targets set at 1.2910 and, ultimately, 1.2811. The MACD indicator reinforces this bearish perspective. Despite the signal line being at significantly oversold levels and diverging from its histogram, indicating a possible short-term corrective rise, the overarching structure continues to exhibit negativity. The pair also declined from a range near 1.3157, hitting the 1.3010 target. A corrective retracement aimed at testing 1.3100 from below is now anticipated. Upon the completion of this correction, the downtrend is expected to continue towards a minimum of 1.2950.
The Stochastic oscillator supports this perspective. The signal line is currently in overbought territory, exceeding 80, and seems ready to decline towards 20. This suggests that any short-term strength may be merely corrective, as selling pressure is expected to reemerge. GBP/USD is finding stability at multi-month lows as we approach a critical BoE meeting. The interplay of dovish inflation data, a risk-off market sentiment, and impending fiscal uncertainty has established a significantly adverse environment for sterling. The current trajectory indicates that the path of least resistance continues to trend downward. Although a short-covering rebound towards 1.3100 may occur following the decision, the overall trend indicates potential for additional declines, with significant targets set at 1.2910 and 1.2811.