GBP/USD hovers near lows as Bank of England decision looms

The GBP/USD pair is attempting to find support around 1.3062 on Thursday, with investors cautiously positioning themselves ahead of today's pivotal Bank of England (BoE) monetary policy meeting. The British currency remains under pressure, trading near a seven-month low against the US dollar and at its weakest level in over two years against the euro.

Market pricing currently implies roughly a one-in-three chance of a 25-basis-point rate cut from the BoE. This uncertainty creates significant asymmetric risk, meaning the pound is poised for a sharp move in either direction once the decision and accompanying statement are released.

The pound's weakness was compounded by the recent release of softer-than-expected UK inflation data, which bolstered expectations for an imminent shift towards policy easing. A simultaneous global sell-off in equity markets, particularly in the tech sector, has further dampened sentiment by reducing appetite for risk-sensitive assets such as sterling.

Adding to the headwinds, investor focus is shifting to the UK budget, due for approval later this month. Chancellor Rachel Reeves has signalled the potential for tax rises, a measure that could stifle economic growth and potentially prompt the BoE to adopt a more dovish stance – another factor weighing on the currency.

Technical analysis: GBP/USD

Four-hour chart

On the H4 chart, GBP/USD broke downwards from a consolidation range around 1.3140, completing a bearish wave to 1.3010. We now anticipate a technical correction towards 1.3090. Following this pullback, the primary downtrend is expected to resume, with the next key targets at 1.2910 and, ultimately, 1.2811. The MACD indicator supports this bearish outlook. While its signal line is at deeply oversold levels and has diverged from its histogram, suggesting the potential for a short-term corrective rise, the overall structure remains negative.

One-hour chart

On the H1 chart, the pair similarly broke down from a range around 1.3157, reaching the 1.3010 target. A corrective retracement to test 1.3100 from below is now expected. Once this correction is complete, the downtrend is likely to extend towards at least 1.2950. The Stochastic oscillator aligns with this view. Its signal line is in overbought territory above 80 and appears poised to turn down towards 20, indicating that any near-term strength is likely corrective before selling pressure reasserts itself.

Conclusion

GBP/USD is stabilising at multi-month lows ahead of a high-stakes BoE meeting. The combination of dovish inflation data, a risk-off market mood, and looming fiscal uncertainty has created a profoundly negative backdrop for sterling. Technically, the path of least resistance remains downward. While a short-covering bounce back towards 1.3100 is possible post-decision, the broader trend suggests further losses, with key targets at 1.2910 and 1.2811.