GBP/USD posts modest gains above 1.2500, UK GDP data eyed

The GBP/USD pair posts modest gains near 1.2525 during the early Asian session on Friday. The major pair bounces off the lows of 1.2445 after the Bank of England (BoE)’s dovish hold. The attention on Friday will shift to the first reading of the UK Gross Domestic Product (GDP) for Q1 and the US Michigan Consumer Sentiment report. 

The BoE kept its borrowing costs on hold at 5.25% for the sixth meeting in a row on Thursday and signaled that it could begin cutting interest rates as early as next month as inflation is “moving in the right direction.”  The BoE Governor Andrew Bailey stated during the press conference that “a rate cut next month was a possibility.”, but he will wait for inflation, activity, and labor market data before making the decision. The dovish stance from the UK central bank that opened the door to future cuts in interest rates exerted some pressure on the Pound Sterling (GBP) following the monetary policy meeting.

Meanwhile, BoE Chief Economist Huw Pill said that the central bank was more confident that they would consider rate cuts over the next few meetings, although they needed more evidence. Investors have been pricing in two rate cuts this year, with the first expected in August. 

On the other hand, San Francisco Fed President Mary Daly said late Thursday that uncertainty about the next few months of inflation has increased and it may take “more time” to bring inflation down to the central bank’s target. A cautious approach to setting interest rates implied that the current rates will likely stay at their current levels for longer. The divergence of policy between the BoE and the Fed is likely to weigh the Cable and cap the pair’s upside in the near term.