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MENAFN- Daily Forex)
Over the last two trading sessions, the GBP/USD currency pair relinquished most of its upward rebound gains, reaching the resistance level of 1.2550. Thus, experienced selling pressure that pushed it down to the support level of 1.2376, where it closed the trading week. The pair's recent performance has been influenced by the Bank of England's announcement, the US jobs data, and investor sentiment regarding the US administration's imposition of tariffs on major global economies.
Bank of England Cuts Rates and Growth Outlook
In a significant event last week, the Bank of England cut its forecast for UK economic growth this year by half and lowered its benchmark interest rate by 25 basis points to 4.5%, its lowest level since mid-2023.
Obviously, this decision was widely expected in financial markets. the bank now expects the UK economy to grow by just 0.75% this year, down from its previous forecast of 1.5% just three months ago. If this turns out to be remotely accurate, it would be deeply disappointing news for Britain's new Labour government, which has made growth its top priority as it boosts living standards and generates funds for cash-strapped public services. With growth proving difficult to achieve, the party's popularity has fallen sharply since its election victory in July.
Financial markets remain uncertain about how many more cuts will be made this year, with the Bank also forecasting higher-than-expected inflation over the next few months – it expects inflation to hit 3.7% sometime in the first half of the year, before drifting back towards its 2% target. Against this backdrop of growth and inflation, Bank Governor Andrew Bailey said the outlook for the UK economy remains uncertain, and uncertainty could increase if US President Donald Trump follows through on his tariff threats.
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Keep in mind that sterling is a risk currency, and its gains will not improve without a return to confidence in the future of global growth and the performance of the new British government for the Bank of England's Policy in 2025
In this regard, according to Deutsche Bank. The Bank of England is likely to cut interest rates five times in 2025. For his part, according to Sanjay Raja, chief economist at Deutsche Bank, the Bank of England is ready to implement multiple rate cuts throughout 2025. In its latest research note, Deutsche Bank now expects five rate cuts this year, up from its previous forecast of four.
Last week, the Bank of England's Monetary Policy Committee cut interest rates by 25 basis points to 4.5% as part of its easing cycle and lowered its economic growth forecasts while raising its inflation forecasts. Despite inflation expected to reach 3.7% this year, the analyst said, "the door remains wide open for further rate cuts" given the prevailing economic conditions and mixed inflation outlook. The minutes of the latest Monetary Policy Committee meeting revealed divisions within the committee, with seven members supporting a quarter-point cut and two members calling for a more aggressive 50 basis point cut.
Surprisingly, Catherine Mann joined Swati Dhingra in voting for a faster pace of rate cuts of 50 basis points. The analyst noted that "weaker activity and lower demand for labour are likely to reduce wage pressures as well as firms' pricing power."
Given the economic conditions, Deutsche Bank expects the Bank of England to deliver another rate cut in May, a shift from its previous forecast of no rate cuts in the second quarter of 2025. This would be followed by three more cuts in the second half of the year, likely in August, November and December, bringing the total number of cuts in 2025 to five.
EURUSD Chart by TradingViewTechnical Analysis for the GBP/USD pair today:
The performance on the daily chart above still strongly confirms the extent of bears' control over the direction of the GBP/USD pair. The technical indicators, led by the RSI and MACD, are still down and have more room before moving towards strong oversold levels. Accordingly, the bears may have the opportunity to move towards the support levels of 1.2290 and 1.2170 respectively, and from the last level, the strongest move for the bears is the next psychological support 1.2000. On the other hand, and in the same time frame, there will be no break of the downtrend without first moving towards the resistance levels of 1.2600 and 1.2740 respectively.
The GBP/USD will remain under pressure until the reaction to the announcement of the US inflation figures and the testimony of the US Federal Reserve Governor Jerome Powell.
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