The GBP/USD pair is currently trading above the mid-1.2600s range after a post-Bank of England decline to over a one-month low. The recent retracement slide from a multi-month peak last week has left the pair vulnerable to further declines. The markets have started pricing in a greater chance of a rate cut in August after BoE Governor Andrew Bailey’s comments on inflation being back at its 2% target. This negative outlook for the GBP might continue ahead of the UK election on July 4, while the USD struggles to capitalize on recent gains amid expectations of a Fed rate-cutting cycle in September.
As key UK data is set to be released during the European session on Friday, GBP/USD is poised for a busy trading day. The BoE’s decision to keep interest rates unchanged at 5.25% has deflated market expectations for rate cuts, leading to uncertainty in the value of the Sterling. The focus on services inflation and the aim to keep inflation sustainably lower has added to the uncertainty surrounding the GBP. The BoE’s stance on maintaining restrictive policies for as long as necessary, despite a looser labor market, has also contributed to the cautious outlook for the GBP/USD pair.
With US Purchasing Managers Index (PMI) activity surveys also set to wrap up the trading week, the GBP/USD pair faces multiple factors influencing its movements. The BoE’s cautious approach to rate cuts, coupled with key data releases from both the UK and US, could lead to increased volatility in the currency pair. Traders will be closely monitoring economic indicators and central bank policies to gauge the direction of the GBP/USD pair in the coming sessions. The potential for further declines in the GBP, combined with uncertainties surrounding US monetary policy, could create a challenging environment for the currency pair in the near term.