GBP/USD price faces volatility ahead of Bank of England rate decision and U.S. trade deal announcements
GBP/USD drops as BoE rate cut looms and U.S.-UK trade deal announcements influence sentiment
The Pound sterling (GBP) has been fluctuating sharply ahead of the Bank of England’s (BoE) monetary policy decision later today. During early May 8 trading, GBP/USD fell back to around 1.3280, losing its earlier gains as the U.S. dollar strengthened. This decline follows a recent recovery in the greenback, which is bolstered by expectations that the Federal Reserve will not rush into cutting interest rates despite mounting stagflation risks.
The BoE is widely expected to announce a 25 basis point (bps) rate cut, lowering borrowing costs to 4.25%. This marks the fourth reduction since the start of the current monetary easing cycle in August 2024. Analysts are focused on comments from the BoE’s Monetary Policy Committee (MPC), particularly regarding any divergence in voting preferences, with some speculating that MPC member Swati Dhingra may push for a 50 bps reduction. The Pound’s performance in the hours following the announcement will likely hinge on the BoE’s outlook for future rate cuts and its response to rising domestic inflation and trade tensions with the U.S.
GBP/USD price dynamics (April 2025 - May 2025) Source: TradingView.
Trade deals and tariff tensions influence GBP/USD sentiment
The outlook for GBP/USD is further complicated by geopolitical developments, particularly U.S.-UK trade talks. U.S. President Donald Trump is set to announce a bilateral trade deal with the UK, which is expected to boost the U.S. dollar’s safe-haven appeal, especially amidst the ongoing tariff disputes between the U.S. and China. Although this deal may provide short-term optimism for the greenback, the overall impact on the GBP/USD exchange rate is anticipated to be muted, given the UK's existing trade deficit with the U.S..
Additionally, market participants are keeping an eye on the U.S.-China trade discussions, which will take place in Switzerland this weekend. Treasury Secretary Scott Bessent has signaled that these meetings will focus more on de-escalating tensions than negotiating a comprehensive agreement, adding further uncertainty to the broader market sentiment.
GBP/USD forecast: Support and resistance levels remain key
On the technical front, GBP/USD has been confined within a range, oscillating between key levels of 1.3200 and 1.3350. A recent rejection at the 1.3360–1.3400 resistance zone suggests that upside momentum may be limited unless the pair can break and hold above these levels. On the downside, a failure to maintain support at 1.3270 could lead to a decline toward 1.3200, with further bearish pressure expected if this level is breached.
The medium-term outlook remains uncertain, dependent on the BoE's policy decisions and the broader economic data that will shape market sentiment. Also as previously discussed, a stronger-than-expected UK economic report or dovish comments from the BoE could lend support to the pound, while U.S dollar strength, particularly if the Federal Reserve remains hawkish, could weigh on GBP/USD.
