- GBP/USD attempted to hold above the 1.2500 level to avoid further losses, but with bearish sentiment ahead of the Bank of England's announcement tomorrow, GBP/USD has slipped to the 1.2484 support level as of writing.
- Overall, investors remain focused on the timing of interest rate cuts by the Federal Reserve.
- Now, the US central bank is expected to implement its first cut in September, versus the previously anticipated November timeline, following the weaker-than-expected US jobs report.
Meanwhile, the Bank of England is expected to keep interest rates unchanged at its next meeting in May, but investors are pricing in the first cut entirely in August rather than September. In April, Bank of England Governor Andrew Bailey expressed optimism as British inflation looked on track to meet the 2% target. UK inflation fell to 3.2% in March 2024, the lowest rate since September 2021, from 3.4% the previous month. Headline inflation peaked at 11.2% in October 2022.
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What is the expected GBP/USD in the coming days?
In this regard, Goldman Sachs lowered the expectations of the pound sterling against the euro and the dollar. Recently, investment bank Goldman Sachs lowered its expectations for the British pound, saying that expectations about future interest rate levels in the United Kingdom are less supportive than they were previously. Moreover, the cuts come just days before the Bank of England's policy decision in May, which could reveal disagreements among senior policymakers over the path interest rates should take.
Consequently, analysts at the Wall Street bank say that the pound is stuck in the middle of an unsupportive repricing of Bank of England policy expectations and supportive global market sentiment. Also, they added "more importantly for the currency, with the market-led repricing of tightening policy recently, the supportive cyclical backdrop to the currency has become less supportive than earlier in the year, and at present this means the pound is unfortunately stuck in the middle."
According to forex trading platforms, GBP/USD fell in April following comments from Bank of England Governor Andrew Bailey and Deputy Governor Dave Ramsden which were interpreted by the market as suggesting that these influential MPC members are leaning towards near-term rate cuts. The bank's analysts added, "GBP sentiment turned more bearish among our client base following Deputy Governor Ramsden's comments, who suggested that he felt the balance of risks around inflation was now tilted to the downside. Furthermore, he noted that economic developments suggested to him that the Fed's tight policy stance was reducing the stickier components of inflation."
Eventually, the losses were erased a week after Ramsden's speech thanks to a speech by chief economist Hugh Bell, who said that not much had changed in terms of inflation expectations in his view. Therefore, markets interpreted Bill's speech as an indication of subsequent interest rate cuts.
Former Bank of England Governor Mervyn King recently expressed his view about the lack of diversity of thought at the Bank of England and other global central banks, saying that this is why they were unable to spot the possibility of rising inflation in the aftermath of the pandemic. He may welcome the diversity of views currently on display at the MPC.
As a result, Goldman Sachs lowered its forecasts for the pound against the US dollar to 1.24, 1.24 and 1.28 in 3, 6 and 12 months from 1.30, 1.33 and 1.35. This implies an expected path of 0.85, 0.85 and 0.84 in EUR/GBP over the same horizon, from 0.81, 0.79 and 0.80 previously. Clearly, this translates to a Pound/Euro forecast profile of 1.1765, 1.1765 and 1.19 from 1.23, 1.2660 and 1.25 previously.
Technical forecasts for the GBP/USD pair today:
As mentioned before, if the movement of the British pound against the US dollar (GBP/USD) heads towards and below the support level of 1.2500, it will bolster the bearish stance for further downward movement. Currently, the nearest support levels for the currency pair at 1.2420 and psychological support at 1.2300 are reinforcing the strength of the downward trend once again. On the other hand, according to the performance on the daily chart attached, there won't be an initial shift to an upward trend without a move towards the resistance level of 1.2775. Eventually, The GBP/USD may remain bearish until there is a reaction to the announcement from the Bank of England tomorrow.
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