Daily Price Outlook
During the European trading session, the GBP/USD currency pair maintained its bullish trend and remained well bid around the 1.2830 level, hitting an intra-day high of 1.2855.
The bullish momentum was driven by traders assessing the Bank of England’s (BoE) monetary policy outlook and increasing expectations of Federal Reserve (Fed) rate cuts, alongside a weaker US Dollar due to political and economic uncertainties.
BoE Governor's Testimony and Cautious Rate Cut Outlook Weigh on GBP/USD Volatility
On the GBP front, the BoE Governor Andrew Bailey’s testimony before Parliament’s Treasury Committee at 14:30 GMT is in focus.
Investors are keen to hear the BoE’s views on interest rates after the central bank cut borrowing costs by 25 basis points (bps) to 4.5% in February, signaling a slow and cautious approach to future cuts.
The BoE also warned that rising energy prices in Q3 could push inflation temporarily higher, delaying its return to the 2% target.
Traders anticipate two more BoE rate cuts this year but remain cautious as businesses may pass on increased employment costs, particularly after the government’s decision to raise employer National Insurance (NI) contributions in the Autumn Budget. These inflationary pressures could limit the BoE’s ability to implement aggressive rate cuts.
Therefore, the cautious stance from the BoE and concerns over inflationary pressures may limit GBP strength, keeping the GBP/USD pair volatile as traders assess future rate cut expectations.
US Dollar Weakens on Trump’s Tariff Policies and Fed Rate Cut Bets
On the US front, the US dollar losing its traction, with the US Dollar Index (DXY) slipping near 105.00, as concerns over former President Donald Trump’s proposed tariff policies weighed on sentiment.
His plans to impose a 25% levy on Canadian and Mexican imports and a 10% tariff on Chinese goods have raised fears of increased costs for consumers, which could weaken household purchasing power and slow economic growth.
Meanwhile, the expectations of Fed rate cuts continue to increase as the recent weak US economic data has fueled speculation that the Fed may lower interest rates in June, with CME FedWatch data showing the probability of a cut rising to 80% from 70% a week ago.
Moving ahead, traders will keep their eyes on the US ADP Employment Change and ISM Services PMI data for more clues about the labor market. Apart from this, the Friday’s US Nonfarm Payrolls (NFP) report will also be important for predicting future Fed policy.
GBP/USD – Technical Analysis
The GBP/USD pair is trading at $1.27896, holding onto slight gains as it tests key technical levels. The pivot point at $1.27752 is a crucial support zone, with buyers maintaining control above this threshold. The 50-day EMA at $1.26605 indicates a strong bullish foundation, reinforcing upward momentum.
If the pair breaks above $1.27740, bullish momentum could accelerate toward $1.28689, the first major resistance level. A breakout above this could extend gains to $1.29481, with a further bullish target at $1.30478, last seen during recent uptrends. Strong volume confirmation above $1.28701 would signal a continued bullish breakout.
On the downside, immediate support rests at $1.26792, with a break below this level likely shifting sentiment in favor of sellers. Further weakness could expose GBP/USD to $1.25663, and deeper losses could test $1.24667, where long-term buyers may step in.
The technical outlook favors a bullish stance, provided GBP/USD holds above the $1.27752 pivot. A confirmed break above $1.28689 could set the stage for further gains, while a drop below $1.26792 may trigger selling pressure.
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