The GBP/USD currency pair has attracted interest from dip buyers as market anticipation builds regarding the Bank of England’s (BoE) decision to hold interest rates steady. Support has emerged near the 1.3150 level, halting a recent decline from the peak of 1.3300, which was recorded earlier in the week and marks the highest level seen since March 2022. Although prices approached the 1.3200 level during the Asian trading session, the lack of strong follow-through reflects hesitance from bullish traders amidst ongoing strength in the US dollar.
Recent actions by the US Federal Reserve have significantly impacted market dynamics. The Fed initiated a policy-easing cycle by reducing borrowing costs by 50 basis points. However, expectations for further aggressive cuts have diminished as policymakers signaled that inflation might not revert to the 2% target until 2026. This outlook has contributed to a notable uptick in US Treasury bond yields, giving the US dollar a boost and pushing the US Dollar Index to a one-week high, which has in turn exerted downward pressure on the GBP/USD pair.
In contrast, expectations surrounding the Bank of England’s approach indicate a more moderate rate-cutting cycle compared to the US. The latest UK Consumer Price Index data revealed an unexpected increase in inflation within the services sector for August, reinforcing the belief that the BoE is likely to keep rates steady in its upcoming policy meeting. This scenario has provided a level of support for the British Pound, limiting the losses of the currency pair.
As traders approach this pivotal central bank meeting, many may choose to adopt a cautious stance. The recent fluctuations in the market suggest that while bullish momentum is possible, caution is warranted given the recent price action near the 1.3300 level. A sustained increase in buying interest will be essential to extend the GBP/USD ’s recent recovery from the psychological support at 1.3000 established last week.
