GBP/USD Holds Below 50-Day SMA Ahead of BoE Rate Decision

British Pound Outlook: GBP/USD

GBP/USD holds below the 50-Day SMA (1.2511) after failing to test the monthly high (1.2576), and the exchange rate may continue to track the negative slope in the moving average as the Bank of England (BoE) is expected to deliver a 25bp rate-cut.

GBP/USD Breaks Above Weekly Range to Eye Monthly High

GBP/USD struggles to retain the range bound price action from earlier this week as the US Personal Consumption Expenditure (PCE) Price Index shows the headline reading rising to 2.6% in December from 2.4% per annum the month prior.

At the same time, the core PCE, the Federal Reserve’s preferred gauge for inflation, held steady at 2.8% during the same period, and signs of persistent price growth may keep the central bank on the sidelines as the US economy shows little signs of a recession.

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UK Economic Calendar

Meanwhile, the BoE is expected to lower the benchmark UK interest rate to 4.50% from 4.75% at its first meeting for 2025, and it remains to be seen if Governor Andrew Bailey and Co. will adjust the forward guidance as the central bank is slated to present its quarterly Monetary Policy Report.

With that said, a dovish BoE rate-cut may produce headwinds for the British Pound as the central bank unwinds its restrictive policy, but more of the same from the Monetary Policy Committee (MPC) may curb the recent weakness in GBP/USD as ‘a gradual approach to removing monetary policy restraint remains appropriate.’

GBP/USD Price Chart –Daily

Chart Prepared by David Song, Senior Strategist; GBP/USD on TradingView

• GBP/USD pulls back ahead of the monthly high (1.2576) to hold below 50-Day SMA (1.2511), and a close below the 1.2390 (38.2% Fibonacci extension) to 1.2446 (May low) zone may push the exchange rate back towards the 1.2300 (50% Fibonacci retracement) to 1.2310 (61.8% Fibonacci extension) region.
• Next area of interest comes in around the monthly low (1.2100), with a breach below the November 2023 low (1.2096) opening up the 2023 low (1.2037).
• Nevertheless, the pullback in GBP/USD may turn out to be temporary if it struggles to close below the 1.2390 (38.2% Fibonacci extension) to 1.2446 (May low) zone, and the exchange rate may stage further attempts to test the monthly high (1.2576) should it push above the moving average for the first time since October.

Additional Market Outlooks

Gold Price Rallies to Fresh Record High amid Limited Response to Fed

EUR/USD Struggles Ahead of ECB as Fed Keeps US Interest Rate on Hold

USD/CAD Unfazed by BoC Rate-Cut Ahead of Fed Decision

AUD/USD Susceptible to Negative Slope in 50-Day SMA

--- Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong