- GBP/USD recovers toward 1.2650 following Wednesday's sharp decline.
- The hawkish twist in the Fed's dot plot boosted the US Dollar in the American session.
- Bank of England is forecast to leave the bank rate unchanged at 4.75%.
After suffering heavy losses in the American session on Wednesday, GBP/USD stages a decisive rebound early Thursday as investors reposition themselves ahead of the Bank of England's (BoE) monetary policy announcements.
British Pound PRICE This week
The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.78% | -0.25% | 2.13% | 1.12% | 1.94% | 2.00% | 0.39% | |
| EUR | -0.78% | -0.98% | 1.44% | 0.40% | 1.32% | 1.28% | -0.33% | |
| GBP | 0.25% | 0.98% | 2.32% | 1.38% | 2.32% | 2.26% | 0.65% | |
| JPY | -2.13% | -1.44% | -2.32% | -1.01% | -0.19% | -0.12% | -1.63% | |
| CAD | -1.12% | -0.40% | -1.38% | 1.01% | 0.87% | 0.87% | -0.73% | |
| AUD | -1.94% | -1.32% | -2.32% | 0.19% | -0.87% | -0.04% | -1.63% | |
| NZD | -2.00% | -1.28% | -2.26% | 0.12% | -0.87% | 0.04% | -1.60% | |
| CHF | -0.39% | 0.33% | -0.65% | 1.63% | 0.73% | 1.63% | 1.60% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
The Federal Reserve (Fed) lowered the policy rate by 25 basis points after the December meeting, as expected. The revised Summary of Economic Projections (SEP), also known as the dot plot, showed that Fed officials' median view of the policy rate at end-2025 stood at 3.9%, up from 3.4% in September's SEP. According to the projections, one of 19 officials see no cuts in 2025, three see one cut, 10 see two cuts, three see three cuts, one sees four cuts and one sees five cuts.
Fed Chairman Jerome Powell explained in the post-meeting press conference that stronger economic growth and lower unemployment would put them on a slower rate-cut path, adding that they can be cautious going forward. US Treasury bond yields surged higher in the Fed aftermath and boosted the US Dollar (USD), forcing GBP/USD to decline sharply.
The improving risk mood limits the USD's gains and helps GBP/USD rebound in the European session on Thursday.
The BoE is widely expected to leave the policy rate unchanged at 4.75%. Since there will not be a press conference, the vote split could influence Pound Sterling's valuation. If the decision to maintain status quo turns out to be a close call, with several policymakers voting in favor of a 25 bps rate cut, GBP/USD could turn south once again.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart rises toward 50, reflecting sellers' hesitancy. On the upside, 1.2700-1.2710 (100-period Simple Moving Average (SMA), Fibonacci 38.2% retracement of the latest downtrend, 200-period SMA) aligns as immediate resistance ahead of 1.2750 (Fibonacci 50% retracement) and 1.2800 (static level).
Looking south, first support could be spotted at 1.2620 (Fibonacci 23.6% retracement) before 1.2570 (static level) and 1.2500 (round level, static level).
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
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