**GBP/USD Weekly Forecast: Range-Bound Ahead of BoE, Fed Cut Decisions**
*By Yohay Elam, ForexCrunch.com*
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**Overview**
The GBP/USD currency pair has been trading in a relatively confined range as traders exercise caution ahead of crucial monetary policy decisions from both the Bank of England (BoE) and the US Federal Reserve (Fed). Neither central bank is expected to cut interest rates immediately, but market participants are increasingly focused on policymakers’ tone and the signals they send regarding the timing and scale of potential rate cuts later in the year.
This article delves into the dominant narratives shaping the pound-dollar pair, the economic data that’s moving markets, and what traders should watch for in the week ahead.
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**Market Background: Two Sides of the Atlantic**
The pound and the dollar both reflect the prevailing conditions of their respective economies and the expectations set by central bankers. While inflation remains a concern in both the UK and US, economic growth is diverging, with the UK battling stagnation and the US continuing to outperform. As such, speculation about the timing and magnitude of rate cuts has become the primary driver of currency movements.
**Key Themes This Week**
1. **Central Bank Caution**
– Neither the BoE nor the Fed is expected to shift rates this week, but their statements will be scrutinized for any hints on future policy moves.
– Focus is squarely on the delicate balance between combating persistent inflation and avoiding economic slowdowns.
2. **UK Economic Uncertainties**
– Mixed economic data continues to cloud the outlook for the pound.
– UK inflation remains above target, but weak growth metrics exert downward pressure on the pound sterling.
– The BoE faces political and economic challenges as the country approaches a possible general election within the next year.
3. **US Economic Outperformance**
– The US economy has repeatedly defied recession calls, posting strong labor market and growth data.
– While inflation is slowing, it remains sticky enough for the Fed to maintain its cautious stance.
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**GBP/USD: Recent Price Action**
– GBP/USD has been caught within a tight trading band, struggling to make any meaningful breakout.
– The range-bound performance reflects a lack of strong catalysts and a hesitancy among traders to take major positions ahead of central bank meetings.
– Technical support remains at 1.2600, while resistance looms near the 1.2800 level.
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**Bank of England Preview: When Will the Doves Land?**
The BoE is widely expected to hold rates steady at its upcoming meeting, maintaining the current Bank Rate at 5.25 percent. However, the real intrigue lies in the voting split among Monetary Policy Committee (MPC) members and the tone in Governor Andrew Bailey’s post-decision commentary.
**Key Issues for the BoE:**
– **Inflation Dynamics**
– UK inflation remains above the BoE’s 2 percent target, running hotter than in the US or eurozone.
– Services inflation and stubborn wage growth complicate the policymaker’s task.
– **Growth Concerns**
– Recent GDP releases have painted an anemic picture, amplifying concerns that restrictive policy could tip the economy into recession.
– **MPC Split**
– At the last meeting, the BoE’s votes were divided: some advocated for a rate cut, while others preferred to wait.
– Any changes in the voting split this week will be closely dissected for dovish or hawkish signals.
– **Forward Guidance**
– Market participants will look for clear hints about when the first rate cut could occur, with expectations centering on late summer or autumn.
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**Federal Reserve Preview: Staying Patient for Now**
The Fed is also expected to keep its policy rate unchanged at 5.25-5.50 percent. Chair Jerome Powell is anticipated to reinforce the central bank’s confidence in a gradual decline in inflation but a desire
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