GBP/USD Stabilizes Above 1.2400 Amid BoE Rate Cut and Awaited US Employment Data

Economic

Summary:

GBP/USD stabilizes above 1.2400 after a volatile response to the BoE's 25 bps rate cut and an unexpected vote split within the MPC.

BUY GBPUSD

Close Time

CLOSED

1.24500

Entry Price

1.26050

1.23400

1.37440 -0.00653 -0.47%

110.0

Pips

Loss

1.23400

Exit Price

1.24500

Entry Price

1.26050

The British Pound (GBP) faced significant volatility on Thursday following the Bank of England's (BoE) monetary policy decisions. Despite a 25-basis point rate cut, the GBP/USD currency pair faltered, reaching a multi-day low below 1.2400. However, the Pound has since found stability, holding above the 1.2400 level as of early Friday. This shift in the market was driven by a combination of central bank actions, market expectations, and anticipation of critical US economic data.

On Thursday, the BoE lowered its benchmark interest rate by 25 basis points to 4.00%, a move that had been widely anticipated by market participants. Despite the expected cut, the immediate market reaction was not entirely positive for the Pound. The BoE's decision was accompanied by a noteworthy vote split, with two members of the Monetary Policy Committee (MPC) voting in favor of a more aggressive 50 basis point reduction. This surprise divergence from the majority stance triggered a sharp selloff in GBP, pushing GBP/USD below the key 1.2400 psychological level.

The uncertainty surrounding the BoE's rate path and its stance on future policy tightening added to the downside pressure on the Pound. BoE Governor Andrew Bailey's remarks during the post-meeting press conference also heightened market concerns. He stated that the central bank would "judge in future meetings whether underlying inflation pressures are easing enough to allow further cuts." This cautious tone suggested that the BoE may not be in a hurry to continue reducing rates, leaving traders questioning whether additional cuts would be forthcoming in the near future.

As attention shifts to the US, the release of the January Nonfarm Payrolls (NFP) report later today is expected to play a pivotal role in shaping the direction of the USD and, by extension, the GBP/USD currency pair. The US Bureau of Labor Statistics is set to publish the NFP data, with forecasts predicting an increase of 170,000 jobs, down from the 256,000 gain seen in December. This expected slowdown in job creation could signal a cooling labor market, which would likely soften expectations for future Federal Reserve rate hikes.

However, any upside surprise, such as an NFP reading above 200,000, could prompt a bullish reaction in the US Dollar. This would likely weigh on GBP/USD, potentially forcing the pair to stretch lower and challenge the 1.2300 support level. Conversely, a weaker-than-expected NFP result, particularly a print below 150,000, could revive market expectations of a Federal Reserve rate cut in March. Such a development would likely encourage a rebound in GBP/USD, pushing the pair higher toward key resistance levels.

Technical Analysis

From a technical perspective, GBP/USD is currently caught between key support and resistance levels. The pair's price action on Thursday saw an attempt to break above the 1.2415 resistance level, but it failed to sustain the upward momentum, closing the daily candlestick below that mark. Without a confirmed break above 1.2415, the bullish outlook remains in question. The immediate technical target for GBP/USD is now 1.2400, where the pair has found some stability.

If GBP/USD manages to hold above 1.2400, the next major resistance target will be the 1.2605 level, which has acted as a significant hurdle in the past. For the bullish scenario to remain intact, GBP/USD will need a catalyst, whether from the US jobs report or further clarity from the BoE on its policy trajectory. Conversely, if the pair fails to hold the 1.2400 support, a deeper pullback toward 1.2300 or even 1.2200 could materialize.

TRADE RECOMMENDATION

BUY GBPUSD

ENTRY PRICE: 1.2450

STOP LOSS: 1.2340

TAKE PROFIT: 1.2605

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GBP/USD Stabilizes Above 1.2400 Amid BoE Rate Cut and Awaited US Employment Data

Technical Analysis

Risk Disclosure