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.

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.