The GBP/USD currency pair has shown signs of stabilization, currently trading around 1.3550 after experiencing a decline from a peak of 1.3660. This shift comes in the wake of the Bank of England’s (BoE) decision to maintain its policy rate at 4%, which was decided by a 7–2 vote. The BoE’s stance follows the Federal Reserve’s announcement of a 25 basis points cut, lowering the Fed funds range to 4.00–4.25%, marking the first easing step of 2025.
The financial markets had largely anticipated the Fed’s interest rate cut, but subsequent revelations in the dot plot indicating the possibility of two more reductions this year contributed to market volatility. Initially, the British pound surged in value before retreating as traders recalibrated their outlook on central bank policies.
The BoE’s decision reflects the ongoing challenges posed by persistent inflation, which stands at 3.8%, well above the target level. Concurrently, the UK’s GDP growth was stagnant at 0% in July. Despite wage growth reaching 4.8%, raising concerns about potential secondary inflation effects, the central bank remains cautious, limiting its capacity for further easing. BoE Governor Andrew Bailey highlighted the uncertainty surrounding the timing of any additional cuts, indicating that the reduction of its balance sheet through gilt sales will slow from £100 billion to £72 billion annually. This hawkish tone relative to the Fed’s pivot has seemingly provided some support for the pound, despite the recent dip.
On the other side of the Atlantic, Federal Reserve Chair Jerome Powell emphasized the necessity of easing measures as employment figures indicated a rise in U.S. unemployment. With just 22,000 jobs added in August and jobless claims stabilizing around 240,000, the Fed’s revised outlook now anticipates rates to be closer to 3.6% by the end of 2025, compared to earlier predictions of 3.9%. Although GDP growth estimates were increased to 1.6% from 1.4%, the Fed’s dovish pivot temporarily expanded the policy gap in favor of the pound. However, concerns regarding U.S. economic demand persist, exerting downward pressure on the dollar, thus maintaining the GBP/USD pair above the 1.35 mark.
From a technical perspective, the pound has rebounded more than 2.3% since its September lows around 1.3140, and it has gained over 7% since the significant tariff-driven sell-off in April. The currency pair peaked at 1.3728, breaking through a declining trendline but subsequently formed a bearish shooting star near resistance levels. Currently, the 1.3600 mark serves as immediate support, aligning with the 30-day simple moving average on the 4-hour chart. Should the pair breach this support, it may expose lower levels at 1.3480 and 1.3360, while maintaining above 1.36 could allow a retest of 1.3720 and the 2025 high of 1.3787. An RSI reading above 50 suggests bullish momentum, although the recent rejection candle indicates potential short-term selling pressures.
Looking ahead, the macroeconomic landscape for the pound against the dollar reveals a complex interplay of inflation and growth concerns in the UK. While the BoE’s hold indicates a lack of dovish guidance that could support the pound, the U.S. appears to be entering a more pronounced easing cycle, with the Fed considering up to a 50 basis point cut this year. This divergence is likely to keep the GBP/USD pair in a bullish trajectory over the medium term. However, near-term risks including sluggish UK GDP growth and the threat of slow inflation reductions could undermine consumer confidence. The pound’s resilience suggests a market preference for sterling over the dollar, yet its sustainable strength will heavily depend on forthcoming macroeconomic data.
