GBP/USD Eases Lower Ahead of Thursday’s BoE Meeting

The combination of a dollar recovery and notable overhead resistance in GBP/USD has caused the pair to pare a bulk of its early week gains, ahead of Thursday’s Bank of England decision.

Retail sales in the US rebounded sharply higher, rising 17.7% in May versus the analyst estimate for a rise of 7.9%. The data suggests that the economy is recovering at a better pace than expected and is likely to lead to upward revisions in GDP forecasts for the US.

The consumer price index in the UK (CIPH) was reported to rise by 0.7% in May after a reading of 0.9% in the prior month. The Office for National Statistics reported that roughly 14% of the items used in this statistic were not available to consumers in May as a result of lockdown restrictions which weighed on the index.

Consumer prices have been trending lower in the UK since topping in late 2017 when CPI hit a high of 3.1% and CPIH hit 2.8%.

GBP/USD may see a slowing of volatility as investors await the latest decision from the Bank of England.

Analysts expect policymakers to unanimously agree on an expansion of the QE program while keeping rates unchanged at 0.1%. There had been talks of negative rates in the media last month, but this does not appear to be a consideration for tomorrow’s meeting.

At the last meeting, two members had voted for a 100 billion pound expansion in asset purchase. As such, this will be the baseline in terms of how much the BoE is expected to increase it’s QE program.

Technical Analysis

The outlook for GBP/USD is mixed in that the pair has been trending higher since mid-May, but has been correcting lower from a high posted last week.

Yesterday, the 200-day moving average was defended by sellers and the pair has wiped out a significant portion of its early week gains.

For the session ahead, resistance is seen at 1.2628 while downside support is found at 1.2500.

The pair could see a slowing of volatility and move into a range ahead of the BoE meeting. Although fluctuations in the dollar stand to impact the pair.

The US dollar index appears to be forming a base and bulls are encouraged by yesterday’s upbeat retail sales report.

Bottom Line

• GBP/USD has come under a bit of pressure after sellers defended the 200 DMA and the dollar gained on yesterday’s US retail sales report.
• The BoE is expected to keep rates on hold and expand its QE program by at least 100 billion pounds tomorrow.

For a look at all of today’s economic events, check out our economic calendar.