The Bank of England (BOE) is expected to defer its planned interest rate cut this week amid inflation risks stemming from the Middle East conflict, with a more cautious tone in its policy statements. Previously, markets widely anticipated the Monetary Policy Committee would lower the rate to 3.5% by the end of Thursday’s meeting, but this expectation has largely turned out to be unfounded as the war drove up energy prices. Economists overwhelmingly predict the committee will maintain the bank rate at 3.75% unchanged with a 7-2 voting margin. The central bank’s heightened vigilance against policy missteps stems from the backlash it faced in 2022 when UK inflation surged above 11% following Russia’s full-scale invasion of Ukraine, for which the BOE was criticized for its delayed response. Currently, Governor Bailey and his colleagues are closely monitoring how long the U.S.-Iran conflict escalations persist and the extent to which sustained upward pressure on oil and gas prices will endure. Even before the Gulf crisis erupted, the UK economy contended with risks of stagnant growth and enduring inflationary pressures. The ongoing tensions have further exposed vulnerabilities in its reliance on imported natural gas. Analysts highlight that unless global energy prices retreat from present levels, the direct consequence could hinder inflation to reach between 3% and 4% by late 2026, outpacing earlier projections near 2% and distancing from the central bank’s 2% target threshold. The growing concern for policymakers is that this development could further elevate public inflation expectations, which are already at historically high levels, complicating the central bank's efforts to downplay any short-term inflationary effects as transitory. Given the high degree of uncertainty surrounding policy outlooks, the BOE may revise its interest rate guidance. In its previous two meetings, the Monetary Policy Committee asserted that "based on current evidence," rates would likely be reduced further. Barclays analysts anticipate the central bank could now abandon this language and instead stress that "the extent and timing of future monetary easing depend on the evolution of inflation prospects." Investors will closely scrutinize individual committee members' statements to assess the depth of shifting perspectives. Edward Allenby, senior economist at Oxford Economics, noted that while the revised terminology might appear deliberately general, the central bank will be acutely aware of the risks associated with significant policy missteps and the reputational damage from perceived abrupt directional shifts. Economists remain divided regarding when the BOE would implement the next rate adjustment.

The Israel-U.S. conflict against Iran has entered its third week, with the Strait of Hormuz effectively blockaded, triggering a surge in crude oil prices beyond US$100 per barrel. Israeli military authorities stated they have developed a detailed operational blueprint for a minimum of three additional weeks, citing thousands of remaining strategic assets—such as ballistic missile infrastructure and nuclear facilities—as targets. Iran’s Islamic Revolutionary Guard Corps (IRGC) countered by declaring intent to strike American industrial sites across the Middle East. Iranian drones temporarily shuttered Dubai International Airport and attacked petroleum infrastructure at Fujairah port in the United Arab Emirates, suspending oil loading activities. Concurrently, U.S. Energy Secretary Chris Wright projected that hostilities between Washington and Tehran could conclude within a matter of weeks should geopolitical tensions abate. Analysts suggest that a gradual de-escalation might restore global oil supply stability and lead to energy price corrections, potentially alleviating inflationary pressures that have risen in recent months. At the macroeconomic policy level, investor attention has shifted to the Federal Reserve's interest rate decision due for release this week. The market broadly anticipates that the Fed will maintain its key interest rate within the 3.50%-3.75% range during this week's meeting. Prior energy price escalations had rekindled inflation expectations, cooling market hopes for near-term rate cuts. However, recent reports indicate that the U.S. is exploring the formation of a joint naval coalition with certain countries to secure strait shipping operations. This news alleviated investors' concerns about energy supply disruptions and rising inflation to some extent, thus easing market expectations for a significant short-term rate cut by the Federal Reserve, which in turn caused the dollar index to show signs of retreating from its highs.

In the 1D timeframe, GBPUSD has broken below the Bollinger lower band and the EMA200. While a short-term downtrend remains unclosed, the candlestick chart formed a piercing pattern indicating potential for a corrective rebound. Immediate resistance is near EMA50 and the middle Bollinger band at 1.345 and 1.346 respectively. The Bollinger channels are showing downward expansion while moving averages diverge in bearish direction, confirming the entry into a short-term bearish phase. The MACD histogram is approaching a golden cross - if realized, a rebound could follow; failure to form the cross would likely result in further decline below 1.33. RSI at 39 suggests prevailing seller dominance. In the 4H timeframe, Bollinger bands have contracted and averages are flattening as the price consolidates along the EMA12 level. The immediate corrective rally remains active, with probable retesting of the Bollinger upper band. RSI at 48 confirms ongoing market pessimism. Overall expectation points to an initial bullish correction followed by resumption of bearish thematic. Therefore, the strategic approach should involve establishing a long position before transitioning to a short position.

Trading Direction: Sell

Entry Price: 1.33

Target Price: 1.37

Stop Loss: 1.32

Support: 1.32, 1.3, 1.28

Resistance: 1.35, 1.38, 1.41