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British Pound Forecast: GBP/USD Dumps to 1.2600 on Dovish BOE

Article By: ,  Head of Market Research
March 23, 2024 2:00 PM

GBP/USD Key Points

  • GBP/USD fell last week after a dovish shift at the BOE prompted traders to increase bets on a June rate cut.
  • There is little in the way of top-tier economic data in the coming week, so GBP/USD traders will continue to digest last week’s BOE and Fed meetings.
  • The key levels to watch will be support 1.2550 and resistance at 1.2700.

GBP/USD: The BOE’s Subtle Dovish Shift Toward Rate Cuts

While Thursday’s Bank of England (BOE) meeting brought little in the way of immediate policy changes, there was a subtle yet notable shift in the monetary policy wind. While the BoE decided to keep the borrowing costs steady, holding the interest rate at 16-year highs of 5.25%, there was a hint of change in the air, highlighted by two previously hawkish members of the bank’s Monetary Policy Committee (MPC) dropping their calls for another rate hike, leading to a 8-1 vote for status quo.

Traders and economists are reading between the lines of the BOE’s statement, sensing a growing confidence that inflation will return to the central bank’s 2% target. As it stands, traders are pricing in an 85% chance of an interest rate cut in June, up from 60% at the start of last week. In post-meeting comments on Friday, BOE Governor Bailey confirmed that expecting rate cuts this year is “not unreasonable.”

One other key development on the rate cutting front came from the Swiss National Bank (SNB) which surprised traders by becoming the first G10 central banks to cut, potentially foreshadowing the start of a global rate-cutting cycle.

However, as we’ve seen with several other major central banks, ongoing concerns about sticky inflation – especially in the ever-vibrant services sector – may ultimately prompt Governor Bailey and Company to push back that timeline as well. In that vein, it will be absolutely essential for GBP/USD traders to watch inflation data on both sides of the Atlantic like a hawk in the coming weeks and months.

GBP/USD: UK Economic Data to Watch

In addition to this week’s US economic data, highlighted by Durable Goods Orders and Consumer Confidence on Tuesday, Final Q4 GDP and Initial Jobless Claims on Thursday, and the Core PCE report on the Good Friday holiday, these are the key UK datapoints to watch in the coming week:

Monday

No major releases of note

Tuesday

5-year Gilt Auction

Wednesday

No major releases of note

Thursday

UK Current Account (Q4)

Final GDP (Q4)

Friday

Good Friday Holiday

British Pound Technical Analysis – GBP/USD Daily Chart

Source: TradingView, StoneX

From a technical perspective, GBP/USD has been a rollercoaster ride through March so far. After breaking above short-term resistance at 1.2700 at the start of the month, the pair rallied up to an 8-month high just below 1.2900 before reversing back lower and selling off for the past two weeks.

Looking ahead, the key short-term levels to watch this week will be support at the rising bullish trend line near 1.2550 and the key previous resistance-turned-support-turned-resistance-again level at 1.2700. With little in the way of top-tier data in the coming week, GBP/USD traders will continue to digest last week’s dueling central bank meetings to decipher whether the BOE or Fed will cut interest rates first and which will cut rates by more this year.

-- Written by Matt Weller, Global Head of Research

Follow Matt on Twitter: @MWellerFX

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