British Pound Forecast: GBP/USD Retests 1.26 with BOE on Tap

GBP/USD Key Points

UK traders are out on a bank holiday as GBP/USD traders look ahead to the Bank of England’s “Super Thursday” festivities
With traders still pricing in a chance of a June rate cut from the BOE, a data-dependent message may be seen as hawkish relative to expectations.
The risks for GBP/USD are tilted toward a topside breakout and continuation toward 1.2700 if this week’s data plays along.

Markets are off to a slowish start to the new week with both Japanese and UK traders out of the office on bank holidays today. With traders bereft of new economic data, they’ve been mostly digesting last week’s dovish FOMC meeting and softer-than-expected NFP report, leading to another (small) round of weakness in the US dollar relative to most of her major rivals.

Looking ahead, the Bank of England’s “Super Thursday” festivities are a standout event risk on the calendar, even if BOE Governor Bailey and Company aren’t expected to make any changes to monetary policy. Overall, the UK economy is growing at a modest rate, with Q1 GDP expected to show 0.3% growth q/q on Friday, and that should lead to a dovish bent amongst BOE policymakers.

As it stands, traders are pricing in about 50bps of interest rate cuts across the year, with the first reduction expected in either August or September, with an outside chance of a cut at the BOE’s next meeting in June. If we’re to see an interest rate cut this summer, Governor Bailey and Company will be looking to set the groundwork as soon as this month’s meeting. Accordingly, a steady-as-she-goes, data-dependent message may be seen as hawkish relative to expectations, potentially setting the stage for another leg higher in the pound sterling against the greenback.

British Pound Technical Analysis – GBP/USD Daily Chart

Source: TradingView, StoneX

Speaking of GBP/USD, the cross is testing a key technical level as we go to press. Cable is pressing the top of its 2-month bearish trend line just below the 1.2600 level, as traders continue show a short-term preference for the UK currency. With a few days yet until this week’s key UK data (BOE on Thursday and GDP on Friday), GBP/USD traders will be watching to see if the pair breaks out above 1.26 or reverses off the current level by midweek.

If the data confirms the initial move, it would set the stage for a continuation as we head into next week and beyond. Given the broad bearish reversal in the US dollar last week, the risks are tilted toward a topside breakout and continuation toward 1.2700 if this week’s data plays along.

-- Written by Matt Weller, Global Head of Research

Follow Matt on Twitter: @MWellerFX

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.