GBP/USD Outlook: Pound Recovers Ahead Of Key Policy Decisions

Republished By Plato

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The pound plunged last week due to a drop in Fed rate cut expectations.

The Fed will meet on Tuesday and likely keep rates unchanged.

The Bank of England will meet on Thursday and likely hold rates at the current 5.2% rate.

The GBP/USD outlook reveals a slight bullish tilt as the pound recovers from last week’s decline ahead of major central bank meetings. Notably, the pound is stronger as markets price in a slower shift to rate cuts by the BoE than the Fed.

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However, the pound plunged last week as the dollar strengthened due to a drop in rate cut expectations. As the week began, markets had priced at a 71% chance that the Fed would cut rates in June. However, data in the week showed that inflation was higher than expected. Consequently, traders scaled back rate cut expectations, leaving the chances of a cut in June at 57%.

Unfortunately, as Fed rate-cut bets decline, the pound loses its rate-cut outlook edge. Initially, there had been a big gap in the expectations for rate cuts between the US and the UK. Markets had seen more cuts in the US than in the UK, boosting the pound. However, this outlook has gradually shifted, closing that gap.

The Fed will meet on Tuesday and likely keep rates unchanged. Meanwhile, the Bank of England will meet on Thursday and likely hold rates at the current 5.2% rate. Notably, a survey on Friday revealed a drop in inflation expectations in the UK for 2024. Therefore, this paves the way for rate cuts in the UK. Still, policymakers might keep a neutral tone at the meeting.

GBP/USD key events today

It could be a slow day for the pound as there are no high-impact events. Therefore, investors will likely stay on the sidelines ahead of major policy decisions in the week.

GBP/USD technical outlook: Bearish bias strengthens below 1.2750

On the technical side, GBP/USD has broken below the 1.2750 key support level to make a lower low, confirming a bearish bias. Moreover, the 30-SMA is now facing down, showing a downtrend. At the same time, the RSI trades below 50 in bearish territory.

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However, recent declines have paused at a bullish trendline, as shown in the chart above. Bears must break below this trendline to confirm the new direction. Otherwise, bulls might return at the trendline support to push the price to new highs above 1.2850.

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