Will The Prospect of a BoE Rate Cut Continue to Dampen GBPUSD?

Macro approach:
- GBPUSD has weakened since last week, pressured by disappointing UK economic data and rising expectations of a BoE rate cut. Meanwhile, the US dollar found support amid cautious risk sentiment and anticipation of key US inflation data.
- UK GDP contracted for a second consecutive month in May, and recent labor market surveys signaled further cooling, reinforcing the case for the BoE's monetary easing. Governor Bailey reiterated that the path for rates is "downward," with markets now pricing in a high probability of a cut at the Aug meeting.
- Meanwhile, the US dollar was buoyed by safe-haven flows and firm inflation expectations ahead of the US CPI release, highlighting policy divergence between the Fed and BoE.
- GBPUSD may remain under pressure as traders await UK inflation and employment data, which could influence the BoE's next move. The pair could see further volatility with US CPI and Fed commentary also on the radar as potential catalysts.

Technical approach:
- GBPUSD is retesting the ascending channel's lower bound, confluence with the key support at 1.3420. The price is between both EMAs, indicating a sideways movement. GBPUSD awaits an apparent breakout to determine the short-term trend.
- If GBPUSD breaches below the support at 1.3420, the price may plunge toward the following support at 1.3175.
- On the contrary, holding above 1.3420 may prompt a short correction to retest EMA21.


Analysis by: Dat Tong, Senior Financial Markets Strategist at Exness