GBP holds near highs as market awaits BoE decision

The GBP/USD pair stabilised around 1.3626 USD on Thursday, following a highly volatile session on Wednesday. The pair remains close to its highest level in over ten weeks, as markets await the Bank of England’s policy decision later today.

The BoE is widely expected to maintain rates at 5.25% (note: corrected from 4% based on current BoE rate) and may signal a reduction in its £100 billion annual bond-purchase program.

Recent data showed UK inflation held steady at 3.8% in August, matching both forecasts and July’s 18-month high. Labour market figures were broadly in line with expectations: unemployment remained at 4.7%, wage growth (ex-bonuses) came in at 4.8% (4.7% including bonuses), and payrolls declined by 8,000.

Market expectations for a BoE rate cut remain subdued, with only a one-in-three chance priced in for a reduction by December.

Meanwhile, the US Federal Reserve delivered a widely anticipated 25-basis-point cut yesterday, with traders now expecting at least two additional cuts by the end of 2025.

Technical analysis: GBP/USD

H4 Chart:

On the H4 chart, GBP/USD completed an upward move to 1.3723 USD, followed by a downward impulse to 1.3620 USD. The pair is now likely to form a consolidation range around this level. A break below 1.3620 USD could initiate a decline towards 1.3528 USD. A corrective rebound towards 1.3620 USD may then follow. Renewed selling pressure could subsequently drive the pair towards 1.3500 USD, with further downside potential to 1.3277 USD. The MACD indicator supports this outlook, with its signal line positioned above zero but turning decisively downward.

H1 Chart:

On the H1 chart, the pair has completed a downward impulse to 1.3620 USD. A consolidation phase is expected around this level. A break lower would likely trigger the first wave of a new downtrend towards 1.3530 USD. The Stochastic oscillator aligns with this near-term bearish view, as its signal line lies below 50 and is trending downward towards 20.

Conclusion

The pound is trading near multi-week highs as markets await guidance from the BoE. While UK inflation remains elevated, softening labour data and a dovish Fed have limited the GBP’s upside. Technically, the pair appears vulnerable to a near-term correction, particularly if the BoE maintains a cautious tone. Today’s decision and accompanying communications will be critical in determining whether cable extends its rally or enters a deeper corrective phase.