• Pound Sterling edges lower after posting small gains on Wednesday.
• The Bank of England is forecast to maintain bank rate at 5.25%.
• Vote split could trigger a reaction in Pound Sterling.

GBP/USD stays relatively quiet and fluctuates in a tight channel above 1.2700 in the European morning on Thursday. The Bank of England’s (BoE) monetary policy announcements could trigger the next big action later in the session.

The BoE is widely expected to leave the policy rate unchanged at 5.25% following the June policy meeting. Because there won’t be a post-meeting press conference, investors will scrutinize the policy statement and the vote split.

In case more than two policymakers vote in favor of a rate cut, the initial market reaction could cause Pound Sterling to weaken against its rivals. On the other hand, GBP/USD could stay in range if the BoE refrains from making any noticeable changes to its policy statement and the vote split remains the same, with seven officials voting for a hold. 

In the second half of the day, the US economic docket will feature weekly Initial Jobless Claims, alongside Housing Starts and Building Permits data for May.

If there is a sharp decline in the number of first-time application for unemployment benefits, with a reading at or below 220,000, following the previous week’s big increase, the USD could gather strength against its rivals in the second half of the day.

Investors will also continue to pay close attention to comments from central bank officials during the American trading hours.

GBP/USD Technical Analysis

GBP/USD trades within a touching distance of the lower limit of the ascending regression channel and the Relative Strength Index (RSI) indicator on the 4-hour chart stays near 50, reflecting a lack of directional momentum.

GBP/USD faces key support at 1.2700 (200-period Simple Moving Average (SMA), lower limit of the ascending channel). If the pair drops below this level and starts using it as resistance, 1.2640 (100-day SMA) could be seen as next support before 1.2600 (psychological level, static level).

On the upside, resistances are located at 1.2740 (100-period SMA), 1.2800 (psychological level, static level) and 1.2850 (end-point of the latest uptrend).

• Pound Sterling edges lower after posting small gains on Wednesday.
• The Bank of England is forecast to maintain bank rate at 5.25%.
• Vote split could trigger a reaction in Pound Sterling.

GBP/USD stays relatively quiet and fluctuates in a tight channel above 1.2700 in the European morning on Thursday. The Bank of England’s (BoE) monetary policy announcements could trigger the next big action later in the session.

The BoE is widely expected to leave the policy rate unchanged at 5.25% following the June policy meeting. Because there won’t be a post-meeting press conference, investors will scrutinize the policy statement and the vote split.

In case more than two policymakers vote in favor of a rate cut, the initial market reaction could cause Pound Sterling to weaken against its rivals. On the other hand, GBP/USD could stay in range if the BoE refrains from making any noticeable changes to its policy statement and the vote split remains the same, with seven officials voting for a hold. 

In the second half of the day, the US economic docket will feature weekly Initial Jobless Claims, alongside Housing Starts and Building Permits data for May.

If there is a sharp decline in the number of first-time application for unemployment benefits, with a reading at or below 220,000, following the previous week’s big increase, the USD could gather strength against its rivals in the second half of the day.

Investors will also continue to pay close attention to comments from central bank officials during the American trading hours.

GBP/USD Technical Analysis

GBP/USD trades within a touching distance of the lower limit of the ascending regression channel and the Relative Strength Index (RSI) indicator on the 4-hour chart stays near 50, reflecting a lack of directional momentum.

GBP/USD faces key support at 1.2700 (200-period Simple Moving Average (SMA), lower limit of the ascending channel). If the pair drops below this level and starts using it as resistance, 1.2640 (100-day SMA) could be seen as next support before 1.2600 (psychological level, static level).

On the upside, resistances are located at 1.2740 (100-period SMA), 1.2800 (psychological level, static level) and 1.2850 (end-point of the latest uptrend).

On the other hand, US jobless claims data could influence investor expectations of a September Fed rate cut.

Economists forecast initial jobless claims to fall from 242k to 235k in the week ending June 15.

Lower-than-expected numbers could temper investor expectations of a Fed rate cut. Tighter labor market conditions may support wage growth and increase disposable income. Upward trends in disposable income could fuel consumer spending and demand-driven inflation.

A higher-for-longer Fed rate path may reduce borrowing costs, reduce disposable income, and curb consumer spending.

Other stats include housing sector-related data. However, the stats will likely play second fiddle to the labor market numbers.

With the US labor market in focus, investors should track FOMC member speeches. FOMC Member Thomas Barkin is on the calendar to speak. Views on inflation and the timing of a Fed rate cut could influence buyer demand for the US dollar.

The Richmond Fed President spoke on Tuesday, saying more progress on inflation would be needed to cut interest rates.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on BoJ chatter, inflation numbers from Japan, and Services PMIs from Japan and the US. An increase in service sector activity in Japan and inflation figures exceeding expectations could prompt the BoJ to consider initiating rate hike discussions.

A more hawkish stance from the BoJ could shift the divergence in monetary policies toward the Yen, especially as the Fed contemplates an interest rate cut.

USD/JPY Price Action

Daily Chart

The USD/JPY remained well above the 50-day and 200-day EMAs, confirming the bullish price trends.

A USD/JPY return to the 158 handle could give the bulls a run at the 160 handle and the April 29 high of 160.209.

Central bank chatter and US labor market data require investor attention.

Conversely, a USD/JPY fall through the 157.5 handle could signal a drop to the 50-day EMA. A break below the 50-day EMA could bring the 151.685 support level into play.

The 14-day RSI at 60.43 indicates a USD/JPY return to the April 29 high of 160.209 before entering overbought territory.

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• EUR/USD maintained its constructive stance so far this week.
• Trading conditions remained thin and volatility was absent on the US holiday.
• Political concerns in Europe appear to have dwindled somewhat.

The US Dollar (USD) traded in a vacillating fashion in the low-105.00s when tracked by the USD Index (DXY) on Wednesday, providing humble support to risk sentiment and encouraging EUR/USD to extend its upside impulse for the third session in a row near the 1.0750 zone.

The pair’s marginal upward movement was also bolstered by easing political concerns in France, while speculation about potential Federal Reserve (Fed) interest rate cuts this year also accompanied the pair’s price action.

Regarding the Fed, the recent cautious stance from Fed officials appeared to limit the Greenback’s downside after they reiterated their prudent approach regarding the commencement of the Fed’s easing cycle.

On the latter, the CME Group’s FedWatch Tool now indicates a nearly 65% probability of lower interest rates by the September 18 meeting.

In the short term, the ECB’s recent rate cut, contrasting with the Fed’s decision to maintain rates, has widened the policy gap between the two central banks, potentially exposing EUR/USD to further weakness.

On this, it is worth noting that ECB Vice President Luis de Guindos emphasized on Tuesday that rate decisions will align with the release of the bank’s updated macroeconomic projections in September.

Looking ahead, the Eurozone’s emerging economic recovery and perceived slowdowns in the US economy are expected to mitigate this disparity, providing some support for the pair on the short-term horizon.

EUR/USD daily chart

EUR/USD short-term technical outlook

If the rebound in EUR/USD gathers impetus, the 200-day SMA at 1.0788 emerges as the immediate target, ahead of the weekly high of 1.0852 (June 12), and the June top of 1.0916 (June 4). The breakout of this level exposes the March peak of 1.0981 (March 8), seconded by the weekly high of 1.0998 (January 11) and the key 1.1000 threshold.

In case bears regain the upper hand, the pair may retest the June low of 1.0667 (June 14), prior to the May low of 1.0649 (May 1), and lastly the 2024 bottom of 1.0601 (April 16).

The 4-hour chart thus far shows some indications of gradual recovery. Bulls should aim for 1.0810 first, followed by 1.0852, 1.0916, and ultimately 1.0942. The initial support, instead, turns up at 1.0667, seconded by 1.0649 and 1.0601. The Relative Strength Index (RSI) has decreased to about 51.

• EUR/USD maintained its constructive stance so far this week.
• Trading conditions remained thin and volatility was absent on the US holiday.
• Political concerns in Europe appear to have dwindled somewhat.

The US Dollar (USD) traded in a vacillating fashion in the low-105.00s when tracked by the USD Index (DXY) on Wednesday, providing humble support to risk sentiment and encouraging EUR/USD to extend its upside impulse for the third session in a row near the 1.0750 zone.

The pair’s marginal upward movement was also bolstered by easing political concerns in France, while speculation about potential Federal Reserve (Fed) interest rate cuts this year also accompanied the pair’s price action.

Regarding the Fed, the recent cautious stance from Fed officials appeared to limit the Greenback’s downside after they reiterated their prudent approach regarding the commencement of the Fed’s easing cycle.

On the latter, the CME Group’s FedWatch Tool now indicates a nearly 65% probability of lower interest rates by the September 18 meeting.

In the short term, the ECB’s recent rate cut, contrasting with the Fed’s decision to maintain rates, has widened the policy gap between the two central banks, potentially exposing EUR/USD to further weakness.

On this, it is worth noting that ECB Vice President Luis de Guindos emphasized on Tuesday that rate decisions will align with the release of the bank’s updated macroeconomic projections in September.

Looking ahead, the Eurozone’s emerging economic recovery and perceived slowdowns in the US economy are expected to mitigate this disparity, providing some support for the pair on the short-term horizon.

EUR/USD daily chart

EUR/USD short-term technical outlook

If the rebound in EUR/USD gathers impetus, the 200-day SMA at 1.0788 emerges as the immediate target, ahead of the weekly high of 1.0852 (June 12), and the June top of 1.0916 (June 4). The breakout of this level exposes the March peak of 1.0981 (March 8), seconded by the weekly high of 1.0998 (January 11) and the key 1.1000 threshold.

In case bears regain the upper hand, the pair may retest the June low of 1.0667 (June 14), prior to the May low of 1.0649 (May 1), and lastly the 2024 bottom of 1.0601 (April 16).

The 4-hour chart thus far shows some indications of gradual recovery. Bulls should aim for 1.0810 first, followed by 1.0852, 1.0916, and ultimately 1.0942. The initial support, instead, turns up at 1.0667, seconded by 1.0649 and 1.0601. The Relative Strength Index (RSI) has decreased to about 51.

• For the third day in a row, the price of the pound sterling against the US dollar GBP/USD is trying to rebound higher with gains at the level of 1.2732.
• It is recovering from strong recent selling operations, which led to it moving towards the support level of 1.2656, its lowest in a month.
• During today’s session, Wednesday, the price of the pound sterling rose slightly after inflation in Britain fell to the Central Bank’s target of 2% in May, as expected.

According to the results of the economic calendar, British core inflation also fell to 3.5% from 3.9%, in line with expectations, and service inflation fell to 5.7% from 5.9%. Despite this, the Bank of England recently said that reaching the target inflation alone will not lead to a cut in interest rates. Moreover, the Bank of England is expected to keep its key interest rate at a 16-year high of 5.25% when it decides on monetary policy tomorrow, but most economists expect two rate cuts this year, with the first likely in August.

On the political front, recent polls show the Labor Party leading the upcoming July 4 election, while the Conservatives led by British Prime Minister Rishi Sunak are in second place.

According to reliable forex trading platforms, GBP/USD will rise if Dave Ramsden votes against a rate cut on Thursday, as this would significantly reduce the chances of a rate cut in August. The Bank of England is expected to keep interest rates at current levels on Thursday and indicate that any decision to cut rates will depend on upcoming data. Meanwhile, the consensus expects a 7-2 vote to keep rates unchanged. Overall, this would be a neutral outcome for the pound.

However, any shift in the voting structure could strongly suggest a shift in the MPC. The market is currently pricing in a 50-50 chance of a rate cut in August, and if those odds fall, sterling will rally.

With that in mind, any changes in the voting structure would provide a strong early signal that would affect the outlook for August.

Ultimately, the chance of a 6-3 vote for a rate cut is low, as this would suggest that another MPC member has looked at the strong inflation and survey data and believes it indicates a need for rate cuts. This would be very unusual. However, there is a higher chance that the MPC will revert to an 8-1 vote to keep rates on hold, with Dave Ramsden changing his vote in light of the stronger-than-expected inflation reading in April.

Technical forecasts for the GBP/USD pair today:

According to the performance on the daily chart the bulls’ confidence in controlling the trend is back. Technically, the GBP/USD price is moving above the resistance of 1.2775, which supports the bullish outlook again. Furthermore, the stronger and more continuous control of the trend will be by moving towards the psychological resistance level of 1.3000. In contrast, and over the same period of time, the support of 1.2600 will be important for the strength of the downward shift. clearly, this will depend on the Bank of England’s decisions tomorrow and the future of British policy, in addition to the policy of global central banks.

Today, we expect the GBP/USD price to remain in narrow ranges in light of the American holiday.

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