British Pound Forecast: GBP/USD Vulnerable as Mann Explains Dovish Deviation

Catherine Mann explains shift from hawk to dove
Potential downside risks for GBP/USD if other MPC members follow suit
Upcoming UK GDP, inflation, retail sales, and unemployment data crucial for traders

Summary

Activist Bank of England (BoE) monetary policy committee (MPC) member Catherine Mann has outlined the factors behind her shock decision to vote for a jumbo 50 basis point rate cut earlier this month, signaling weakening demand was a major driver to see her switch from policy hawk to dove within the space of weeks.

While GBP/USD has not been heavily influenced by rate differentials over the past month, a loose relationship remains. That suggests if Mann can convince other MPC members to join her in the dovish camp, downside risks may build for cable with markets unwilling to price in aggressive rate cuts from the bank this year.

Mann’s Morph to Uber Dove

In an interview with the Financial Times, Mann said UK inflation is becoming less of a threat due to weakening pricing power from corporates. "I can see pricing coming very close to [2 percent] target-consistent [levels] in the year ahead," she said.

Providing context on her pivot from chief policy hawk to dove, Mann said demand conditions are now “quite a bit weaker,” prompting her decision to join with Swati Dhingra in voting for a 50 basis point cut to the bank rate in February. At the time, the abrupt shift delivered an immediate and meaningful market impact as traders speculated the remaining seven members who voted for a smaller 25 basis point decrease could soon join the small-yet-growing uber dovish camp.

Bank Rate Expected to Remain Restrictive

Source: Bloomberg

Swaps markets see little risk of the MPC following up the February cut to the bank rate to 4.5% when it meets in March, preferring instead to fully price the next 25bp reduction in May. Over the entirety of 2025, just 2.5 rate cuts are priced, an outcome that would still leave policy rates in restrictive territory considering many see neutral levels in a range of between 2-3%.

While there has only been a loose relationship between GBP/USD with short-end interest rate differentials between the United States and United Kingdom over the past month, if Mann’s pivot is a lead indicator for the rest of the committee, that could add to downside risks for the pound. BoE Governor Andrew Bailey is scheduled to speak later Tuesday, although he’s unlikely to deviate far from the lines provided last week after the interest rate decision.

Perhaps of more importance will be updated UK economic growth, inflation, retail sales, and unemployment data released over the next week, along with the US inflation report and comments from Jerome Powell in Washington DC over the next two days.

GBP/USD Technical Analysis

Source: TradingView

GBP/USD looks vulnerable to near-term downside, threatening to break out of what resembles a rising wedge pattern on the daily timeframe. Right now, the pair is resting on horizontal support around 1.2354, with a clean break of that level putting a potential retest of the February 3 low on the table.

Beyond, the January swing low just below 1.2100 is another level to watch, especially as it’s found just above major historical levels. Momentum indicators look to be in the process of turning bearish, potentially adding the risk of renewed downside. RSI (14) has keeled over and broken its uptrend while MACD is on the cusp of confirming the signal.

If GBP/USD can hold 1.2354, it would provide a more neutral signal, with 1.2500 a level to watch on the topside given two failures there in recent weeks.

-- Written by David Scutt

Follow David on Twitter @scutty

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