GBP/USD Price Braces for Central Banks Decisions This Week

Focus on Geopolitical Tensions

The UK CPI data declined from 3.5% in April to 3.4% in May, while core inflation fell from 3.8% to 3.5%. A key metric watched by both markets and the Bank of England’s Monetary Policy Committee is services CPI, which came in at 4.7%, slightly below the expected 4.8%.

Despite this modest easing in UK inflation, attention remains firmly on rising geopolitical tensions in the Middle East, which are pushing energy prices higher. This could pose a challenge to any near-term interest rate cut by the Bank of England, as it risks fueling further inflation.

What Are Markets Expecting from the Central Bank Meetings?

Federal Reserve:
The Federal Open Market Committee is expected to hold interest rates steady at 4.50% today. However, investor focus will be on the Fed’s updated forecasts for growth, inflation, and unemployment, along with the dot plot chart that reveals policymakers’ outlook on rate direction for this year and next. Any deviation from market expectations (currently pricing in two rate cuts in 2025) could move the US dollar either way.

Investors will also closely follow the Federal Reserve Chairman’s press conference, which may address ongoing geopolitical tensions and their impact on oil prices, inflation, and, ultimately, U.S. interest rate policy. Mr. Powell may emphasize the need to wait until after the July deadline to assess the impact of the potential new tariffs on the US economy before taking any action. As a result, Mr. Powell is likely to signal that interest rates will remain on hold at least until September.

Bank of England:
The Monetary Policy Committee is expected to keep interest rates unchanged at 4.25%, given current inflation remains well above the 2% target, despite signs of labor market weakness, with unemployment at a four-year high and wage growth at its lowest in months.

A key concern for policymakers is the potential resurgence of headline inflation, driven by elevated energy prices amid geopolitical tensions and persistent services inflation. While services CPI fell notably from 5.4% in April to 4.7% in May, the level remains too high to justify a rate cut.

MPC members have signaled that rate cuts, when they do come, will be gradual and cautious. As such, no change is expected before the August meeting, contingent on sustained inflationary declines.

GBP/USD: A Potential Reversal Ahead

On June 13, GBP/USD hit multi-year highs above 1.3600 before retreating on profit-taking. The pair may now be heading toward the low end of its trading zone between 1.3607 and 1.3382. A negative divergence between price (a high with a higher high) and RSI (a high with a lower high) signals a potential reversal.

A daily close below 1.3382 would signal a possible correction toward 1.3047. Nonetheless, the support level at 1.3137 should be considered.

Key Levels in the Upside Scenario

A daily close above 1.3607 would indicate strong bullish momentum, potentially driving a move toward 1.3885. However, the resistance level at 1.3792 should be monitored.

GBP/USD – Daily Price Chart

Chart Source: ADSS Platform