It recently made minimal changes to its monetary policy, notably keeping interest rates at their previous level. Of particular interest was the 7 to 2 vote in favor of maintaining the status quo, deviating from the expected result of 9 to 0. This suggests the possibility of the first rate cuts coming as early as this summer.
Consequently, the upcoming data on the UK reading gains importance, potentially increasing the volatility of currency pairs involving the pound sterling this week.
Meanwhile, the currency pair successfully broke through a crucial supply zone around the 1.27 price level, paving the way for further bullish movement.
When will the Bank of England cut interest rates?
Following interest rate cuts earlier this year, there are market expectations that the ECB will do the same, possibly as early as June, marking a shift in monetary policy.
Similarly, the BOE could follow a similar path, with market expectations leaning slightly toward rate cuts in the same month, just barely exceeding a 50% probability.
Tomorrow's release on CPI dynamics could make a compelling case, especially if it aligns with market consensus, showing the biggest year-on-year drop since last October.
The situation is similar in terms of , where there is still a long way to go towards the inflation target, but the forecasts assume a continuation of the positive trend.
Therefore, if we do not see negative surprises, according to a recent statement by Bank of England Deputy Governor Ben Broadbent, rate cuts can be expected in the coming months, not excluding June.
The US Federal Reserve's “wait and see” approach
Even though the latest US inflation data was closely aligned with market expectations, it triggered another bullish wave in US stock indices and a weakening of the US dollar. However, for the Federal Reserve, this may not be enough as a catalyst for a faster turn in policy, given that consumer inflation dynamics persist above the 3% threshold and show no signs of returning to levels aim.
What does this mean for the dollar? It appears that the market has largely factored in the momentum generated by inflation numbers during the recent declines. With no major data releases expected in the coming days, the dollar's valuation may remain stable. This, in turn, creates room for the British pound to take the lead in the short term against the GBPUSD pair.
Prospects for extension of the GBP/USD bullish movement
Will GBP/USD's bullish momentum continue?
Following a local rally triggered by a test of the supply zone around the 1.27 level, buyer interest is gradually and steadily pushing prices higher. Currently, the next target for buyers is another supply zone near 1.28, which offers approximately 100 points of upside potential.
Bottom line
If tomorrow's inflation data falls more than expected, the pound could weaken. From a technical perspective, a drop below the 1.2640 support level would indicate a reversal of the local uptrend, which could lead to levels below 1.25.
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Disclaimer: The author does not own any of these shares. This content, which is prepared for purely educational purposes, cannot be considered investment advice.
