Pound Sterling underperforms ahead of BoE interest rate decision

• The Pound Sterling falls against its major currency peers ahead of the BoE’s monetary policy announcement.
• Investors expect the BoE to hold interest rates steady at 3.75%.
• The Fed is expected to maintain the status quo in the next two policy meetings.

The Pound Sterling (GBP) trades lower against its major currency peers on Thursday ahead of the Bank of England’s (BoE) interest rate decision at 12:00 GMT.

Investors expect the BoE to keep interest rates unchanged at 3.75%, with a 7-2 split, as the central bank reduced borrowing rates in its last meeting in December, and guided that the monetary policy will remain on a “gradual downward path”. Monetary Policy Committee (MPC) members Swati Dhingra and Alan Taylor are expected to be the ones to advocate for another interest rate cut of 25 basis points (bps).

Assuming that the BoE will maintain the status quo, the major driver for the British currency will be the Monetary Policy Report and Governor Andrew Bailey’s press conference, which would provide fresh cues on the interest rate outlook.

BoE officials will likely support the continuation of the monetary easing path as employment conditions remain weak, and the price pressures are expected to return to the central bank’s 2% target in the near term. The ILO Unemployment Rate has remained elevated at 5.1% in the last two months, the highest level seen since January 2021.

In the last policy meeting, the BoE projected inflation to return to the 2% target in the second quarter of 2026; however, price pressures accelerated in December after cooling down in October and November.

Daily Digest Market Movers: Investors await BoE’s policy announcement, US JOLTS Job Openings data

• The Pound Sterling trades 0.20% lower against the US Dollar (USD) during the European trading session on Thursday. The GBP/USD pair weakens as the US Dollar extends its rally amid firm speculation that the Federal Reserve (Fed) will hold interest rates steady for another two meetings ahead.
• The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, posts a fresh over-a-week high at 97.82.
• Traders seem confident that the Fed will keep interest rates unchanged in the range of 3.50%-3.75% in its policy meetings in March and April, according to the CME FedWatch tool
• Fed dovish projections have cooled as inflationary pressures remain well above the central bank’s 2% target, and the impact of recent interest rate cuts is yet to pass through the economy.
• On the economic data front, investors shift focus to the US JOLTS Job Openings data for December, which will be published at 15:00 GMT. US employers are expected to have posted 7.2 million fresh jobs, higher than the previous reading of 7.146 million.
• In Thursday’s session, investors will also focus on the European Central Bank’s (ECB) monetary policy announcement at 13:15 GMT. The ECB is also expected to leave borrowing rates unchanged, as various officials have expressed that monetary adjustments are not required unless there is a dramatic change in inflation and employment.

Technical Analysis: Bullish momentum cools, yet short-term bias still higher

GBP/USD trades lower at around 1.3623 as of writing. The price holds above the rising 20-day Exponential Moving Average (EMA) at 1.3601, keeping the short-term bias oriented higher. The 20-day EMA has been ascending, and continued closes above it would favor trend extension.

The 14-day Relative Strength Index (RSI) at 55 (neutral) has eased from prior overbought readings, indicating bullish momentum has cooled yet remains on the positive side of the midline.

Momentum would improve if the price continues to hold above the average, and pullbacks would be supported on first tests of the 20-day EMA at 1.3601. A break below that barrier could shift the bias lower and expose a deeper retracement towards the psychological level of 1.3500. Looking up, the February 4 high of 1.3733 and the four-year high of 1.3870 will be key barriers.

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