GBP/USD Forecast: Buyers shy away, eyes on BoE policy decisions

GBP/USD has lost its traction and dropped below 1.2600 on Thursday.
Bank of England is widely expected to raise its policy rate by 25 bps.
US economic docket will feature April PPI and weekly Jobless Claims data.

Eren Sengezer FXStreet

GBP/USD has retreated below 1.2600 early Thursday after having reached its highest level in a year at 1.2680 on Wednesday. The pair's near-term technical outlook points to a bearish tilt as focus shift to the Bank of England's (BoE) policy announcements.

On Wednesday, the US Dollar (USD) came under selling pressure after the data from the US showed that Consumer Price Index (CPI) rose 4.9% on a yearly basis in April, compared to the market expectation of 5%. The cautious market stance, however, didn't allow GBP/USD to preserve its bullish momentum.

The BoE is widely expected to raise its key rate by 25 basis points to 4.5% following the May policy meeting. Although the UK economy proved to be more resilient than anticipated, inflation remains stubbornly high.

In the past few policy meetings, two external members of the Monetary Policy Committee (MPC), Silvana Tenreyro and Swati Dhingra, have voted to keep the policy rate unchanged. In case these members vote in favor of a rate increase, that could be seen as a hawkish surprise. Similarly, the GBP could gather strength if the policy statement shows that some members voted for a 50 bps rate increase.

On the other hand, Pound Sterling could come under selling pressure if more than two MPC members vote to keep the policy rate unchanged.

Investors will also pay close attention to revised projections. BoE policymakers, including Governor Andrew Bailey, have said that they are expecting inflation to fall "quite rapidly" before summer. If that view translates into downward revisions in inflation forecasts, markets could see that as a sign that the BoE could be approaching the end of its tightening cycle.

In case Bailey leaves the door for additional rate hikes in the near future, GBP could regain its strength. According to Reuters, markets are pricing in nearly an 80% probability of another 25 bps hike in June. Hence, Bailey might need to mention the possibility of one more rate increase after June for investors to assess his tone as being hawkish.

In the second half of the day, April Producer Price Index (PPI) and weekly Initial Jobless Claims data will be featured in the US economic docket. Nevertheless, the BoE event should remain as the primary driver of GBP/USD's action.

GBP/USD Technical Analysis

GBP/USD trades near the lower limit of the ascending regression channel, which is currently located at 1.2570. The 50-period Simple Moving Average (SMA) reinforces that support as well. In case the pair confirms that level as resistance, 1.2520 (100-period SMA) aligns as next bearish target before 1.2500 (psychological level, static level) and 1.2460 (200-period SMA).

On the upside, 1.2600 (static level) forms interim resistance before 1.2650 (mid-point of the ascending regression channel). A four-hour close above the latter could attract buyers and fuel another leg higher toward 1.2700.

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

AUD/USD gains traction near 0.7100 as the post-Fed USD rally pauses

AUD/USD finds fresh buyers and retakes 0.7100 in the Asian session on Thursday as the US Dollar pauses its hawkish Fed-inspired rally to its highest level since late July. However, RBA rate-hike bets and hopes for US-Iran diplomatic efforts lift risk sentiment and support the risk-sensitive Australian Dollar and the major.

USD/JPY reverses a dip below 156.00 as focus shifts to BoJ

USD/JPY is reversing a brief dip below 156.00 in the Asian session on Thursday, looking to snap a three-day winning streak to a nearly two-week top set the previous day. The US Dollar pauses following the post-Fed rally to seven-week highs, while a more hawkish repricing of the BoJ's policy normalization path supports the Japanese Yen. This keeps the pair's upside limited, with the focus now shifting to the BoJ policy decision due on Friday.

Gold retakes $4,300 amid modest USD pullback but hawkish Fed caps upside

Gold climbs back above the $4,300 mark heading into the European session on Thursday, though it remains within striking distance of a six-week low touched the previous day. The US Dollar eases after touching a fresh high since late July and offers some support to the commodity. However, the Fed's hawkish outlook, along with escalating Middle East tensions, should continue to underpin the safe-haven and cap the non-yielding bullion.

XRP and XLM rebound amid mixed signals

Ripple (XRP) and Stellar (XLM) extend their recovery at the time of writing on Thursday after finding support at key technical levels. However, mixed derivatives and on-chain data for both altcoins suggest that traders remain cautious and have yet to show strong conviction in a sustained rebound. Derivatives data shows a mixed and cautious outlook among traders.

BoE expected to hold interest rate at 3.75%

The Bank of England (BoE) is set to reveal its latest monetary policy decision on Thursday, coinciding with its sixth rate-setting meeting of 2026. Market analysts expect the central bank to keep its benchmark interest rate steady at 3.75%, which should be its sixth hold in a row following December’s 25-bps rate cut.

How Japan became the World's Banker and why that era may be ending

Japan's ultra-low interest rates helped finance trillions of dollars in global investments for more than a decade, making the Japanese Yen one of the world’s cheapest sources of funding. With the Bank of Japan expected to tighten policy again this week, that advantage may be entering a new phase. While most major economies raised interest rates, Japan remained the world's outlier.