GBP/USD may correct lower

Bank of England monetary policy

The UK Consumer Price Index data for February, released today, shows a decline from the previous month. The YoY headline CPI came in at 2.8%, down from 3% in January, while the YoY core CPI dropped to 3.5% from 3.7%.

At its most recent meeting, the Bank of England (BoE) maintained interest rates unchanged at 4.5%, as expected, with 8 out of 9 members voting in favor. The Monetary Policy Committee emphasised that interest rate reductions should be cautious and gradual. Given current inflation levels, monetary policy must remain sufficiently restrictive until inflationary pressures ease and return to the 2% target. Therefore, any move toward rate cuts will require a clear and sustained decline in inflation.

As a result, UK interest rates are likely to remain unchanged in the near term, pending further economic data. A 25-basis point cut could take place at the May meeting, after which the BoE is expected to continue its gradual approach, implementing rate cuts approximately once every three months throughout the year.

UK Government tax policy

The UK Chancellor may announce a £10 billion reduction in government spending in today’s Spring Budget before the House of Commons. One of the key justifications for these spending cuts may be the ongoing challenges facing the global economy, particularly the high cost of borrowing.

However, these proposed cuts are likely to face criticism from the British Labour Party. On the other hand, one of the most significant areas expected to see increased spending is the Defence Department budget, especially considering US President Trump’s threats to abandon Europe’s protection, with growing calls within his administration for a potential NATO withdrawal.

GBP/USD – Upward momentum slowing

On February 13, GBP/USD closed above its 50-day moving average, initiating an upward trend characterized by higher highs and higher lows. On March 20, the pair hit a multi-month high, surpassing the 1.3000 barrier before retreating due to profit-taking.

Currently, the pair is trading within a range of 1.3000 to 1.2775 and maybe seems to be moving towards the low end of this zone. A break below the uptrend line originating from the January 13 low, along with a daily close below 1.2775, would signal the end of the uptrend, a possible price correction, and a potential decline toward 1.2548. In this scenario, the support level of 1.2706 should be considered.

Key levels to watch in a bullish scenario

Conversely, a daily close above 1.3000 would indicate strong bullish momentum, potentially driving prices toward 1.3173. In this case, the resistance area at the 1.3059 – 1.3073 should be kept in focus.

GBP/USD price – Daily Chart

Chart Source: ADSS Platform