Expectation that the pound will not change the rate | 07 May 2024

GBPUSD:

GBPUSD traded in positive territory for the fifth consecutive day near 1.2560 during the Asian session on Tuesday. The weakening US dollar (USD) is providing some support to the major pair. The Bank of England's (BoE) interest rate decision on Thursday will be in focus and the rate is expected to remain unchanged.

The Bank of England will keep rates at 5.25% at its May meeting on Thursday. Traders will be keeping a close eye on the possible timing of rate cuts and the Bank of England's interest rate guidance. However, dovish comments from Bank of England Governor Andrew Bailey and Deputy Governor Dave Ramsden in April sparked speculation that the Bank of England's rate easing cycle may be closer to the European Central Bank (ECB) than the Fed. Bank of England Governor Bailey said he was confident that core inflation would return to the desired 2% in April. The UK central bank's dovish stance could put pressure on the Pound and limit the pair's decline.

Investors raised bets that the US Federal Reserve will cut interest rates this year after US employment data last week slowed more than expected in April. The Fed's speech this week may provide some hints about future monetary policy. On Monday, Richmond Fed President Thomas Barkin said the current level of the interest rate should cool the economy enough to bring inflation down to the 2% target, and a strong labor market will give officials time to gain confidence that inflation will fall.

Meanwhile, New York Fed President John Williams said that while rate cuts will happen, monetary policy is currently in a very good place. Later in the day, Bank of Minneapolis President Neel Kashkari will speak. The dovish tone from Fed officials could lead to a lower dollar and create a tailwind for GBP/USD for the time being. According to the LSEG rate probability app, financial markets have priced in a 46 basis points (bps) Fed rate cut by the end of 2024, with the first cut expected in September or November.

Trading recommendation: Trade mainly with buy orders at the price level of 1.2570. We consider sell orders at the price level of 1.2530.

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