GBP/USD Consolidates Ahead of BoE Announcement, Bullish Momentum

After briefly dipping below 1.2700 on Wednesday, GBP/USD managed to recover its losses during the latter half of the day. Currently, the pair remains relatively stable around 1.2750 as investors eagerly await the monetary policy decisions from the Bank of England (BoE).

There is widespread anticipation that the BoE will implement a 25 basis points (bps) rate hike, raising its policy rate to 4.75%. As there will be no post-meeting press conference, market participants will closely scrutinize the policy statement for any indications regarding the future policy outlook.

While it is considered unlikely, a 50 bps rate hike would be viewed as a significant and unexpectedly hawkish surprise, providing a notable boost to GBP/USD. In May, two policymakers voted to maintain the policy rate unchanged. If these policymakers adopt a more hawkish stance and the BoE raises the rate through a unanimous vote, Pound Sterling could demonstrate resilience against its counterparts. Additionally, comments regarding inflation developments could impact the currency's valuation in this scenario.

The UK has experienced uncomfortably high levels of inflation and wage inflation since the last policy meeting, contradicting the BoE's forecasts of a significant drop in inflation from April. An acknowledgment of persistently high inflation and the necessity for further tightening measures could drive demand for Pound Sterling.

Conversely, GBP/USD could face downward pressure if the BoE downplays recent inflation readings and refrains from committing to additional rate hikes.

It's worth noting that GBP/USD has closed the past three weeks with gains, accumulating an impressive increase of nearly 4% during that period. The pair's rally was fueled by strong wage inflation data from the UK and the general weakness of the US Dollar following the Federal Reserve's decision to pause rate hikes. Market participants have already priced in a hawkish outcome from the BoE, and they will seek more than just a 25 bps hike to support further upside momentum in GBP/USD. Our analysis suggests a new bullish impulse forming within the existing bullish channel, with a potential retest of the 38.2% Fibonacci area, creating a triple local bottom before resuming the ascent of the Pound. The take profit target is set at the 127.2% Fibonacci extension level.

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GBP/USD surged above 1.2700 on Wednesday, showcasing its resilience after the release of UK Retail Sales data. Despite the prevailing negative market sentiment, the pair managed to erase its daily losses in the second half of the day. In early Thursday trading, GBP/USD remains relatively stable around 1.2750 as investors eagerly await the Bank of England's (BoE) monetary policy decisions.

There is widespread anticipation that the BoE will raise its policy rate by 25 basis points (bps) to 4.75%. While no post-meeting press conference is scheduled, market participants will closely analyze the policy statement for any fresh indications about the future policy outlook.

While it is unlikely, a surprise 50 bps rate hike would be considered significantly hawkish, potentially providing a substantial boost to GBP/USD. In May, two policymakers voted to keep the policy rate unchanged. Should these policymakers adopt a more hawkish stance and the BoE raises the rate unanimously, Pound Sterling could demonstrate resilience against its currency counterparts. Additionally, comments regarding inflation trends could have an impact on the valuation of the currency.

It should be noted that both inflation and wage inflation in the UK have remained uncomfortably high since the last policy meeting, and the BoE's previous forecasts of a sharp decline in inflation from April have proven inaccurate, to say the least. If the BoE acknowledges the persistence of high inflation and the necessity for further tightening, Pound Sterling may experience increased demand.

Conversely, GBP/USD could face downward pressure if the BoE downplays recent inflation readings and refrains from committing to additional rate hikes.

Over the past three weeks, GBP/USD has consistently closed with gains, accumulating an impressive 4% increase during that period. The pair's rally has been fueled by strong wage inflation data from the UK and a broad-based weakness in the US Dollar following the Federal Reserve's decision to pause rate hikes. Market participants already appear to have priced in a hawkish outcome from the BoE, and they will be looking for more than just a 25 bps hike to support further upward movement in GBP/USD. As discussed previously, our analysis indicates the potential for a fresh bullish impulse once the price retests the 38.2% and 50% Fibonacci retracement levels. GBP/USD remains within a bullish channel, and our target is set at the 127.2% Fibonacci extension.