rose during the previous session and is now correcting to 1.3403. The pound responded positively to the Bank of England's decision to keep interest rates unchanged, with market attention focused on the regulator's guidance on how the conflict with Iran could influence future policy.
The Monetary Policy Committee voted unanimously in favor of a pause (9-0), a notable change from the more divided 5-4 alignment in February. Some members have acknowledged the possibility of future rate hikes. The Bank of England has adopted a wait-and-see strategy amid significant uncertainty.
While the pause in rates was widely anticipated, market expectations have changed markedly. Until recently, rate cuts were in the cards, but rising oil prices amid the conflict with Iran have raised inflation risks and tilted sentiment toward a more hawkish policy stance.
The Bank of England estimates that inflation could accelerate to 3.5% in the coming quarters and highlighted the risk of inflation expectations becoming entrenched in the economy. At the same time, signs of an economic slowdown persist, which could slow price increases, although the main risk now centers on inflation.
Additional labor market data revealed a slowdown in wage growth to its lowest rate since late 2020. Unemployment remains at 5.2% and employment shows signs of stabilization. Under normal circumstances, that data might support softer rhetoric; However, the current geopolitical environment and high energy prices have brought inflation risks to the fore.
Overall, the Bank of England's stance remains cautious. As the pause in rates continues, the scope for policy easing is decreasing, limiting the pound's upside potential.
Technical analysis
On the GBP/USD H4 chart, the market is forming a wide consolidation range around 1.3354, which currently extends to 1.3467. A drop to 1.3333 is expected in the near term, and a new consolidation range is likely to form after this correction.
A bullish break would pave the way for a continuation wave towards 1.3494, while a bearish break would suggest a further move towards 1.3133. Technically, this scenario is confirmed by the MACD indicator, whose signal line is above zero and pointing firmly upwards.
On the H1 chart, the market has formed a compact consolidation range around 1.3424. A break lower has initiated a wave structure that extends to 1.3333. If this level is broken, a further decline towards 1.3125 is possible.
On the contrary, an upside breakout of the range could trigger a wave of growth towards 1.3494. Technically, this scenario is confirmed by the stochastic oscillator, with its signal line below 80 and pointing firmly towards 20.
Conclusion
GBP/USD's positive reaction to the Bank of England's unanimous decision reflects market recognition that rising inflation risks – driven by geopolitical tensions and higher energy prices – are narrowing the path to policy easing. While the Bank's cautious stance and unanimous vote provide some support for sterling, the shift from expectations of rate cuts to potential rate hikes has recalibrated market sentiment. With geopolitical events taking center stage and technical indicators pointing to further consolidation, the near-term direction of sterling will likely depend on whether inflation concerns continue to outweigh signs of a domestic economic slowdown.
By RoboForex Analysis Department
Disclaimer: Any forecast contained herein is based on the author's personal opinion. This analysis cannot be considered trading advice. RoboForex assumes no responsibility for trading results based on the trading recommendations and reviews contained herein.
