GBP/USD is experiencing a significant rebound toward 1.2650 following a sharp decline on Wednesday. This recovery comes in the wake of a hawkish turn in the Federal Reserve’s dot plot, which has strengthened the US Dollar during the American trading session. The Bank of England is anticipated to keep its bank rate steady at 4.75%.
After substantial losses on Wednesday, GBP/USD managed a solid recovery early Thursday as traders reassess their positions ahead of the Bank of England’s upcoming monetary policy announcements. The Federal Reserve, as expected, reduced the policy rate by 25 basis points after its December meeting. The updated Summary of Economic Projections indicated an increase in the median policy rate forecast for the end of 2025, which now sits at 3.9%, up from 3.4% in September. This revision reflects a divergence in opinions among Fed officials regarding future rate cuts, with various projections indicating differing paths forward.
In his post-meeting remarks, the Fed Chair highlighted that stronger economic activity coupled with reduced unemployment could lead to a more measured approach to rate adjustments. The aftermath of the Fed’s meeting saw a rise in US Treasury bond yields, which in turn bolstered the US Dollar and initially pressured GBP/USD . However, a shift in risk sentiment has capped further gains for the dollar, allowing the GBP/USD pair to recover during the European trading hours on Thursday.
While the Bank of England is widely expected to maintain its current rate, the dynamics of the vote could play a pivotal role in the valuation of the Pound Sterling. A closely contested decision, particularly with certain policymakers advocating for a 25 basis point cut, may prompt further downward pressure on GBP/USD .
From a technical viewpoint, the Relative Strength Index on the 4-hour chart is moving upward toward the neutral level of 50, signaling hesitation among sellers. Immediate resistance is identified at the 1.2700 – 1.2710 range, with further levels at 1.2750 and 1.2800. Conversely, support could emerge around 1.2620, followed by levels at 1.2570 and the psychologically significant 1.2500 level.
