GBP/USD Buyers Eye Upside Ahead of BoE Decision

Market Overview

With the Federal Reserve’s 50-basis-point rate cut in September, the shift towards an accommodative monetary policy is now underway. While the market had partially priced in this move, expectations of further rate cuts—potentially two more 25-basis-point reductions in the upcoming meetings—are likely to weaken the dollar in the near term. This dovish stance contrasts with the Bank of England’s more cautious approach. The BoE remains focused on inflation control, maintaining its rates higher until there is clearer evidence that inflation is securely within its 2% target.

Though the BoE is expected to keep rates steady in today’s meeting, the key point will be how policymakers view the trajectory of rates in the coming months. A dovish tone for the remainder of the year could limit gains for the pound, despite an initial boost from a steady rate announcement.

The vote split is key for sterling, with a closer result likely weighing on the currency. Despite potential risks, sterling remains a favored currency, reflecting positive market sentiment since the July U.K. election.

Technical Outlook

On the four-hour chart, GBP/USD continues to climb within an ascending channel. However, it is now testing a critical resistance level at 1.32535, which coincides with the pair’s two-year high. Should buyers gather enough momentum to break this resistance, further upside targets include 1.32809, 1.32951, 1.33157, and the ultimate goal at 1.33541.

Momentum indicators are confirming this bullish bias. The RSI remains in the positive zone, signaling continued buying interest, while the MACD shows strength as its histogram grows above the signal line. Short-term and long-term moving averages are also aligned with the ongoing uptrend.

Oscillator Confirmations

RSI: Trending upward, indicating a strong bullish market.

MACD: Positive momentum is intact, suggesting further upside potential.

Moving Averages: Both short and long-term averages confirm the current uptrend.

Alternative Scenario

In case buyers fail to push beyond 1.32535, GBP/USD could retreat toward the immediate support at 1.32151. A break below this level would bring the next support at 1.31529 into focus. A decisive drop below this support would invalidate the current bullish outlook and signal a potential downward move, likely leading to a retest of the lower boundary of the ascending channel.

Key Levels Overview

• Resistance Levels:
  • Resistance 4: 1.33541
  • Resistance 3: 1.33157
  • Resistance 2: 1.32951
  • Resistance 1: 1.32809
  • Current Price: 1.32506
• Support Levels:
  • Support 1: 1.32151
  • Support 2: 1.31529

Key Events to Watch

The primary event for the pound today is the Bank of England’s interest rate decision. Markets expect no change in rates, but the real focus will be on the voting pattern among policymakers regarding future rate cuts. Should a significant number of members favor maintaining or reducing rates, it could provide clearer guidance for the coming months.

Meanwhile, in the U.S., investors will keep a close eye on the weekly unemployment claims, the Philadelphia Fed Manufacturing Index, and August’s housing data. These reports could offer further insight into the health of the U.S. economy and impact the dollar’s performance.

Conclusion

GBP/USD buyers are targeting further gains, with a key resistance at 1.32535 in focus. Breaking above this level would open the door to higher targets at 1.32809 and beyond. However, a failure to breach this resistance could lead to a pullback toward 1.32151 or even 1.31529. The Bank of England’s meeting today and U.S. economic data releases will play a crucial role in shaping the near-term direction of this pair.

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