GBP to USD Forecast: Bank of England and Fed Rate Cut Speculation

Highlights

• The GBP/USD gained 0.32% on Friday, ending the session at $1.24531.
• Rising bets on a May Fed rate cut drove buyer demand for the GBP/USD on Friday.
• On Monday, Bank of England Governor Andrew Bailey will be in focus.

The Friday GBP/USD Overview

On Monday, the GBP/USD gained 0.32%. After a 0.01% loss on Thursday, the GBP/USD ended the day at $1.24531. The GBP/USD fell to a low of $1.23738 before rising to a high of $1.24648.

Bank of England Governor Andrew Bailey in Focus

On Monday, Bank of England Andrew Bailey will be in the spotlight. Recent UK inflation and retail sales figures supported a shift in Bank of England rhetoric.

Bank of England Governor Andrew Bailey recently poured cold water on discussing interest rate cuts. However, the retail sales figures could dampen demand-driven inflationary pressures. Significantly, UK private consumption contributes over 60% to the UK economy. A weak consumer spending outlook could raise fears of a prolonged UK recession.

Governor Bailey could soften his view on rate cut discussions. A more dovish stance on monetary policy could pressure buyer demand for the GBP/USD.

There are no UK economic indicators for investors to consider.

Fed Speakers in the Spotlight

On Monday, investors must monitor Fed speakers throughout the session. Hawkish commentary regarding the economy and interest rates would surprise the markets. However, affirmation of a pivot toward rate cut discussions could influence the buyer demand for the US dollar.

Recent US inflation and retail sales figures have fueled bets on a May Fed rate cut. A weaker consumer spending outlook eases demand-driven inflationary pressure and the need for a hawkish rate path.

Notably, US private consumption contributes over 60% to the US economy. A hawkish rate path and a downward trend in consumer spending could deliver a hard landing. Softer inflation numbers could incentivize the Fed to avoid a hard landing.

According to the CME FedWatch Tool, bets on a March Fed rate cut have increased from 12.4% to 30.0% over one week. Bets on a May Fed rate cut have jumped from 29.6% to 62.0% over one week.

Short-Term Forecast

The markets are betting on Bank of England and Fed rate cuts. However, the UK macroeconomic environment could force the BoE to cut rates before the Fed. A robust US economy and monetary policy expectations leave central bank speeches to dictate near-term trends.

GBP to USD Price Action

Daily Chart

The GBP/USD remained above the 200-day and 50-day EMAs, affirming bullish price signals.

A GBP/USD hold above the $1.24410 resistance level would give the bulls a run at $1.25.

Central bank speeches will be the focal points.

However, a GBP/USD fall through the $1.24410 support level would bring the 200-day EMA into play. Dovish Bank of England Governor comments would support a GBP/USD pullback.

The 14-period daily RSI reading of 62.87 suggests a GBP/USD move to $1.2550 before entering overbought territory.

4-Hourly Chart

The GBP/USD held above the 50-day and 200-day EMAs, reaffirming bullish price signals.

A GBP/USD return to $1.25 would support a move toward the $1.26 handle.

However, a drop below the $1.24410 support level would give the bears a run at the 50-day EMA.

The 14-period RSI on the 4-hour Chart at 68.61 indicates a GBP/USD move to $1.25 before entering overbought territory.