The British pound has lost some of the gains made against the US dollar on Tuesday in early European trading session on Wednesday. The GBPUSD trading pair closed trading on Tuesday at +0.21%, but was exchanging at 1.2615, a decline of -0.07% at 0840 GMT on Wednesday. The pair inched up on Tuesday following Bank of England (BoE) Governor Andrew Bailey’s optimistic testimony in the UK parliament.
According to Governor Bailey, inflation still remains a key concern for the BoE, but the regulator is prioritizing economic growth. Appearing before the Treasury Select Committee, he stated that the BoE could not rule out rate cuts before the inflation cools down to 2%.
The UK economy was in a recession during the last quarter of 2023, and the BoE is keen to avoid another contraction. Consequently, the policy makers are not only focusing on lowering inflation, but also striking a balance with economic output. BoE Deputy Governor, Ben Broadbent, said on Tuesday that the UK labour market was responding positively to the current interest rates, while another member, Swati Dhangra warned that keeping interest rates high for long could be detrimental to the economy. Their statements align with Governor Bailey’s statement that it wasn’t unrealistic to expect rate cuts this year.
Meanwhile, the market has turned its attention to FOMC minutes which will be out after the European session closes. The dovish-leaning tone from the BoE policymakers will likely put the pound under pressure, at least until Thursday, when the UK PMI data and US Initial Jobless Claims figures come out. The safe haven dollar will also get some upthrust from the disagreements between the US and China over a ceasefire between Israel and Hamas.
The RSI on the 30-minute GBPUSD chart sends mixed signals, leaning towards control by the bulls. The 1.2615 pivot mark is critical to the currency pair’s movement. Control by the bulls past the 1.2645 mark could help create momentum to test the second resistance level at 1.2665. Alternatively, a bearish momentum will see the pair find support at 1.2595. A breach of this mark could motivate the sellers to test the 1.2575 support.