GBP/USD: Preview of the BoE Interest Rate Decision

Summary:

GBP/USD is on a consolidation pattern ahead of the BoE interest rate decision. A hawkish tone is likely; which will be the pair's bullish catalyst.

GBP/USD has eased ahead of Thursday’s BoE interest rate decision. The bank started its meeting on Wednesday and is scheduled to present its decision in the afternoon. On the one hand, analysts expect the central bank to leave interest rates unchanged at the current 0.1%. The move will be similar to what the Federal Reserve and the European Central Bank have done recently.

However, the focus will be on its quantitative easing (QE) program. With the reopening of the economy, the labor market is tightening. Unemployment rate dropped to 4.9% in February. Recent data have also shown improvement in the retail, services, and manufacturing sectors.

As a reaction to the current situation, analysts and investors will be keen on the bank’s forward guidance regarding its £875 billion QE program. The bank is expected to offer initial signs towards tightening its monetary policy. At its current pace, its asset-purchasing program is likely to run its course sooner than expected. According to the Bank of America, BoE may cut its weekly bond-buying from 4.4 billion to 3.2 billion pounds.

GBPUSD Technical Outlook

On a four-hour chart, GBP/USD is on a consolidation pattern as investors await the BoE interest rate decision on Thursday afternoon. Besides, the pair is trading along the 25 and 50-day exponential moving averages. At the time of writing, it was down by 0.06% at 1.3894. It has formed a descending channel spanning from mid-April.

I expect GBP/USD to react to the tone taken by the Bank of England. A hawkish tone will push the pair to 1.4000. On the flip side, a dovish tone will place the next target at 1.3800.