GBPUSD drops 0.25% 📌

After yesterday’s Fed Chair conference, investor attention shifts to the Bank of England, which will announce its interest rate decision at 1:00 PM. Concerns over economic growth have pushed expectations for renewed cuts (the last one was in February) to address the risk of further stagnation, providing more certainty to consumers and businesses.

Today’s decision is competing in weight with the announcement of a “major trade deal with representatives of a great and highly respected country,” which Trump teased overnight. Tariffs remain a major risk factor for the UK’s economic rebound, which is why speculation that the deal involves the UK has caused significant volatility in the pound.

Expectations for today’s decision

• Rate cuts return – the market expects a 25 bps cut to 4.25%, with an 8:1 vote split in favor of cutting rates. BoE MPC member Swati Dhingra may support a more aggressive 50 bps cut (Bloomberg).

• GDP forecast update – growth in 2025 could be revised upward, while 2026 may be downgraded due to a slowdown driven by U.S. trade policies.

• Disinflation still ahead – CPI dropped to 2.6% in March from 2.8% in February. However, forecasts point to a local peak in mid-2025 around 3.3% y/y. The BoE plans to maintain a 2.0% inflation target, with long-term forecasts pointing to price growth slowing after the mid-2025 peak.

• Dovish pivot – while the Monetary Policy Committee will likely maintain a cautious tone, uncertainty and weaker momentum may prompt a more dovish approach in coming months. Specifically, the term “gradual” monetary easing may be removed from BoE statements, signaling the possibility of more frequent cuts.

Source: XTB Research

What is the market pricing in?

The money market is fully pricing in today’s rate cut and gives nearly 60% odds of continued easing in June. MPC member commentary in April pointed to relatively low inflation concerns, instead suggesting potential disinflationary pressure from U.S. tariffs. Slowing price growth may also be reinforced by a weakening U.S. dollar.

Source: Bloomberg Finance L.P.

First trade deal between the U.S. and the UK

Today, Trump is scheduled to hold a White House press conference where a trade agreement with a U.S. trading partner is expected to be presented. Confidential sources cited by the New York Times say the country is indeed the United Kingdom.
According to reports, the agreement will likely take the form of a memorandum or framework for further negotiations rather than a finalized trade deal. However, speculation persists that the document could include tariff reductions on British steel and automobiles, as well as lower tariffs on agricultural products.

Earlier this week, the UK also signed a free trade agreement with India, which will reduce or eliminate tariffs on key exports to India (lamb, whisky, medical equipment, machinery). In return, the UK will lower tariffs on Indian goods such as clothing and food. As a result, trade volume between the two countries is expected to grow by approximately £25.5 billion, reducing the UK’s reliance on imports from the EU.

GBPUSD (D1 interval)

The GBPUSD pair is down 0.16% today ahead of the BoE decision. However, the sell-off on the pair is driven more by U.S. dollar (USD) strength than British pound (GBP) weakness. The pound remains among the gaining currencies today, but USD gains are stronger, causing GBPUSD to decline.

From a technical perspective, the pair has been trending in an ascending channel since the start of the year. The upper boundary currently lies near the 1.34 GBP/USD area, while the nearest support on the downside is around 1.32 GBP/USD.

Source: xStation5