The GBP/USD exchange rate pulled back slightly after the Federal Reserve interest rate decision and US GDP data. It dropped to a low of 1.2400, down from this week’s high of 1.2500 as focus shifts to the upcoming US personal consumption expenditure (PCE) data and Bank of England (BoE) decision.
BoE and Federal Reserve decisions
The Federal Reserve, as was widely expected, decided to leave rates unchanged and maintained that the US economy was strong. It left the headline consumer interest rates intact at 4.50% and hinted that the next cut will come later this year, with analysts expecting it to be in the July meeting.
The GBP/USD pair dropped after the latest GDP data from the US. According to the statistics agency, the economy grew by 2.3% in the fourth quarter after expanding by 3.1% in the previous quarter. This means that the economy expanded by 2.8% in 2024, higher than the median estimate of 2.7%.
The next key catalyst for the GBP/USD pair will be the upcoming US PCE data scheduled on Friday. Economists expect the data to show that the core PCE remained at 2.8%, while the headline PCE rose from 2.4% to 2.6%.
These numbers will justify the Fed’s hawkish stance at the last meeting if they are this strong. Besides, inflation risks are still elevated as Trump promises to impose tariffs and
The GBP/USD pair will also react to the upcoming Bank of England (BoE) interest rate decision. Economists expect the bank to slash interest rates by 0.25% and embrace a more dovish tone. If this happens, it will bring rates to 4.50%.
The BoE will also signal that more rate cuts are coming since the UK economy is slowing and inflation is falling. This explains why the FTSE 100 index has jumped and the UK government bond yields have slipped. The ten-year has dropped from 4.90% to 4.50%, while the five-year has fallen from 4.65% to 4.2%.
GBP/USD technical analysis
GBP/USD chart by TradingView
The daily chart shows that the GBP/USD pair has rebounded after bottoming at 1.2087 earlier this year. It recently rallied above the falling trendline that connects the highest swings since November last year. The pair has also remained below the 50-day moving average.
It has also formed a small falling wedge or a bullish flag pattern, pointing to further gains ahead. Therefore, there is a likelihood that the GBP/USD exchange rate will continue rising as bulls target the next key resistance level at 1.2750, the 50% retracement level. A drop below the support at 1.2350 will invalidate the bullish view.
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