Anna 
In Wednesday’s London session, the Pound Sterling (GBP) dipped below the key psychological support level of 1.2500 against the US Dollar (USD), facing pressure from several factors including a robust recovery in the US Dollar and uncertainty surrounding the upcoming Bank of England (BoE) interest rate decision scheduled for Thursday.
The GBP/USD pair experienced selling pressure primarily due to a strong rebound in the US Dollar, compounded by apprehension ahead of the BoE’s monetary policy announcement. Analysts anticipate that the BoE will maintain its benchmark interest rate at 0.25% for the sixth consecutive meeting. However, there are expectations of a slightly dovish tone regarding the future interest rate trajectory, particularly given Governor Andrew Bailey’s remarks at the IMF’s Spring Meeting last month.
Bailey expressed confidence that headline inflation in the UK could have reached the targeted rate of 2% in April, potentially influencing the BoE’s stance on interest rates. Financial markets are pricing in a potential easing cycle starting from the June meeting, with traders factoring in around 53 basis points (bps) of rate cuts for the year. This implies the likelihood of at least two quarter-point cuts, a significant shift from previous expectations that primarily accounted for only one rate cut following March’s inflation data.
The expectation of rate cuts gained momentum following Bailey’s acknowledgment during the last monetary policy meeting that speculation regarding two or three rate cuts this year is rational. This sentiment has further contributed to the downward pressure on the Pound against the US Dollar, reflecting market anticipation of potential easing measures by the Bank of England amidst evolving economic conditions.
As the market awaits the outcome of the BoE’s decision and accompanying statement, continued uncertainty surrounding interest rate policy is likely to influence trading dynamics for the GBP/USD pair in the near term.
