GBP/USD Remains Under Pre-Fed Levels as BoE Maintains Steady Bank Rate

British Pound Outlook: GBP/USD

The GBP/USD currency pair faces challenges in regaining momentum following the Federal Reserve's interest rate announcement, while the Bank of England (BoE) maintains the Bank Rate at 4.75%. As a result, the exchange rate is retracing from the recovery witnessed since the November low of 1.2487, particularly as it follows a downward trend indicated by the 50-Day Simple Moving Average (SMA) at 1.3019.

GBP/USD Remains Stuck Below Pre-Fed Levels Despite Steady BoE Rate

The GBP/USD pair shows signs of vulnerability, appearing to form a bearish flag pattern as it remains below the moving average. There seems to be increasing dissent among the Monetary Policy Committee (MPC) members, as recent developments strengthen the case for a gradual exit from restrictive monetary policy.

Insights from the BoE’s recent meeting indicate that the central bank may reduce its restrictive stance by 2025, with three members advocating for a 0.25 percentage point cut to the Bank Rate at this session. The mounting concern over sluggish demand and a weakening labor market suggests that more MPC officials will likely prepare the public for lower interest rates.

UK Economic Calendar

Given this backdrop, the British Pound could encounter downward pressure leading up to the next BoE meeting scheduled for February 6, 2025. However, the forthcoming UK Retail Sales report may support GBP/USD in the short term, with household spending projected to rise by 0.5% in November following a contraction of 0.7% in the previous month.

A favorable outcome from the Retail Sales data may prompt a bullish reaction in the British Pound, whereas a disappointing report could drive the exchange rate towards the November low of 1.2487, as the bear-flag pattern continues to develop.

GBP/USD Price Chart – Daily

• GBP/USD recently marked a new monthly low at 1.2562 after struggling to surpass the resistance zone between 1.2710 (23.6% Fibonacci extension) and 1.2760 (61.8% Fibonacci retracement). The inability to maintain levels above 1.2540 (78.6% Fibonacci retracement) could set the stage for a test of the November low of 1.2487.
• Should GBP/USD break below the 1.2540 threshold, the next target levels would be around 1.2390 (38.2% Fibonacci extension) to 1.2446 (May low), though failing to close below 1.2540 may keep the pair within the November range.
• A close above 1.2710 (23.6% Fibonacci extension) to 1.2760 (61.8% Fibonacci retracement) will be necessary to bring the level of 1.2820 (38.2% Fibonacci extension) back into focus, with additional interest around 1.2900 (23.6% Fibonacci retracement) to 1.2910 (50% Fibonacci extension).

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--- Analysis provided by a Market Strategist