GBP/USD Forecast: Awaits BoE policy decision for some meaningful impetus ahead of Brexit

The GBP/USD pair remained depressed through the major part of Wednesday's trading action and remained well within the striking distance of over one-week lows set in the previous session. The British pound continued to be weighed down by prospects for an imminent interest rate cut by the Bank of England and persistent fears that Britain might crash out of the EU at the end of this year. This coupled with the prevailing US dollar buying interest further contributed to the pair's weaker tone.

Traders preferred to stay on the sidelines

The greenback was being supported by signs of a strengthening economy, reinforced by Tuesday's impressive jump in the US consumer confidence index to the highest level since August. Meanwhile, the USD uptick lost some steam following the Fed's latest monetary policy announcement, which turned out to be rather non-event for the market. As was widely expected, the US central bank left its benchmark rate unchanged in the range of 1.5% to 1.75% and reiterated that the current monetary policy stance remained “appropriate”.

However, the Fed Chair Jerome Powell's dissatisfaction over inflation running below the 2% target fueled market expectations that the Fed would lower interest rate by at least once this year. Adding to this, increasing demand for traditional safe-haven currencies – amid concerns about the economic impact of the coronavirus – kept the USD appreciating move under check and helped the pair to find some support at lower levels. The pair ended the day nearly unchanged, awaiting fresh catalyst from the highly-anticipated Bank of England (BoE) policy meeting on Thursday.

Bets for an imminent cut receded sharply last week after data showed strong improvement in business optimism. However, the recent dovish comments by BoE policymakers and weaker UK economic data published earlier this month – inflation figures, retail sales, and Gross Domestic Product – still support chances of a rate cut. Given the market is still uncertainty about the final decision, the BoE announcement is likely to infuse a fresh bout of volatility around the GBP pair and produce some meaningful trading opportunities.

Short-term technical outlook

From a technical perspective, nothing seems to have changed much for the pair and bearish traders are likely to wait for a sustained break through a support marked by a near three-month-old ascending trend-line support. This is followed by monthly lows, around the 1.2955 region, which if broken should pave the way for a further downfall and accelerate the fall further towards the 1.2905-1.2900 area (December monthly lows) en-route the 1.2830-25 support zone.

On the flip side, immediate resistance is pegged near the 1.3050 region, which if cleared might trigger a short-covering move back towards the 1.3100 round-figure mark. Sustained strength above the said handle might continue fueling the recovery momentum, which might assist the pair to move towards the 1.3140 horizontal resistance ahead of last Friday's swing high, around the 1.3170 region, and the 1.3200 round-figure mark.