GBP/USD : Traders Brace for BoE Rate Decision | Errante
Market Overview
The Bank of England (BOE) is set to announce its widely anticipated decision to reduce interest rates by 25 basis points, lowering them from 4.75% to 4.5%. Market participants have already priced in this outcome with a 98% certainty, and it is unlikely that the central bank will deliver any surprises during this decision. This adjustment will also accompany the release of BOE’s updated growth and inflation forecasts, as well as BOE Governor Andrew Bailey’s press conference. Importantly, markets anticipate at least two additional rate cuts this year as weak economic data continue to dominate the UK’s outlook.
Fundamental Factors
The UK economy has displayed signs of weakness, with sharp slowdowns in growth, rising inflation, and potential concerns surrounding unemployment. BOE previously forecasted a 1.5% GDP growth rate for 2025, but this projection may now be downgraded to just 1%, reflecting the economic strain. Compounding recent pressures is the devastation of weak data, with the Citi economic surprise index nearing its lowest level in a year.Such cumulative disappointments raise the possibility that GDP growth might fall short of even the BOE’s revised expectations.From an inflation perspective, upward pressure stems from a weaker pound and rising energy prices, prompting the BOE to likely revise inflation forecasts higher for 2025. While inflation is currently anticipated to exceed the central bank’s 2% target for much of the year, policymakers may argue that cutting interest rates in stages can mitigate sluggish growth without further inflaming inflationary pressures. Meanwhile, unemployment forecasts remain under scrutiny. Should revised projections reveal rising unemployment figures, the case for accelerated rate reductions later in 2025 strengthens further. A deteriorating labor market often signals a need to stimulate the economy, offering justification for more aggressive policy measures.
Technical Analysis
With a bearish pin-bar on the 4-hour chart, the GBP/USD price is slowly retreating below the 1.2500 handle towards the 30-period SMA. Though the price remains sandwiched between 1.2450 support and 1.2550 resistance, the bearish pressure may mount in the coming hours. The RSI is still above 50.0 in the buying zone, which suggests indecision in the markets. Hence, traders should cautiously wait for further developments and confirmations on the chart to take fresh entries.
Conclusion
The BOE’s February decision reflects its attempt to balance persistently high inflation with faltering GDP growth and potential risks in employment stability. Although the base case indicates three rate cuts this year, additional economic strains could force the BOE to move more decisively. Growth downgrades, rising inflation, and precarious unemployment levels suggest that 2025 will be a pivotal year, testing the central bank’s ability to steer the UK economy through uncertainty. Markets will closely monitor developments following Thursday’s announcement to gauge the pace and trajectory of further rate adjustments.
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