Pound Sterling faces pressure as BoE decision looms

• The Pound Sterling skids below 1.2500 ahead of the Bank of England’s decision.
• Investors expect that the BoE could provide a concrete timeframe for rate cuts.
• Fed policymakers are not comfortable with rate-cut projections for this year.

The Pound Sterling (GBP) extends its downside to 1.2470 against the US Dollar (USD) in Thursday’s London session. The GBP/USD pair is under pressure amid caution ahead of the Bank of England’s (BoE) interest rate decision, which will be announced at 11:00 GMT, and dismal market mood. 

The BoE is widely anticipated to keep borrowing rates steady at 5.25% for the sixth time straight, which makes the interest rate guidance a crucial trigger for the next move in the Pound Sterling.

Financial markets expect that the BoE could turn slightly dovish on the interest rate outlook as consistently easing United Kingdom (UK) price pressures suggest that inflation is on course to return sustainably to the desired rate of 2%. The BoE is expected to remain vigilant on wage growth, which is almost double the rate required for inflation to return to the 2% target.

Investors expect eight of the nine-member-led Monetary Policy Committee (MPC) will support keeping interest rates steady, while policymaker Swati Dhingra is likely to continue with her rate-cut stance. Traders remain divided over BoE Deputy Governor Dave Ramsden’s stance on interest rates, as he remained quite optimistic about progress in the disinflation process in his latest commentary in April.

Daily digest market movers: Pound Sterling weakens ahead of BoE meeting

• The Pound Sterling remains on the back foot as the market sentiment turns cautious due to hawkish interest rate guidance from Federal Reserve (Fed) policymakers. S&P 500 futures have posted some losses in the Asian session, exhibiting a decline in investors’ risk appetite. The overall scenario has improved the US Dollar’s appeal. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds gains near 105.60.
• On Wednesday, Boston Fed Bank President Susan Collins said that surprise upticks in recent inflation and activity readings suggest that the central bank needs to maintain interest rates at their current levels until they get greater confidence that inflation will sustainably return to the 2% target. Collins added, “A slowdown in activity will be needed to ensure that demand is better aligned with supply for inflation to return durably,” Reuters reported.
• This week, Minneapolis Fed Bank President Neel Kashkari also emphasized the need to keep interest rates at their current levels for the entire year. Kashkari cited concerns over stalling progress in disinflation due to housing market strength.
• Investors remain leaning towards interest rate guidance from Fed speakers due to the absence of tier-1 United States economic data. 
• On the UK front, investors await the March month and preliminary Q1 Gross Domestic Product (GDP) data, which will be published on Friday. Economists expect that the UK economy expanded by 0.4% in the January-March period after contracting by 0.3% in the last quarter of 2023. This suggests that the technical recession in the second half of 2023 was shallow. 
• Apart from the GDP data, investors will also focus on the monthly factory and preliminary Q1 Total Business Investment data. The factory data provides cues about overall demand from the domestic and the overseas market.

Technical Analysis: Pound Sterling slips below 20-day EMA

The Pound Sterling extends its losing streak for the third trading session on Thursday. The GBP/USD is under pressure due to multiple headwinds. The Cable resumes its downside journey after facing strong resistance above the neckline of the Head and Shoulder (H&S) chart pattern formed on a daily timeframe. On April 12, the pair fell sharply after breaking below the neckline of the H&S pattern plotted from December 8 low around 1.2500.

The near-term outlook is uncertain as the asset has dropped below the 20-day Exponential Moving Average (EMA), which trades around 1.2510.

The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, suggesting indecisiveness among market participants.