GBP/USD Price Slips to 1.3550 as BoE Holds 4% and Fed Signals More Cuts

GBP/USD Steadies After Fed Cut and BoE Hold

The GBP/USD pair trades near 1.3550 after sliding from a session high of 1.3660 as the Bank of England left its policy rate unchanged at 4% with a 7–2 vote. The move followed the Federal Reserve’s 25bps cut that lowered the Fed funds range to 4.00–4.25%, the first easing step of 2025. Markets had fully priced in the Fed’s cut, but the dot plot pointing to two more reductions this year drove volatility, with sterling initially spiking higher before losing ground as traders reassessed relative central bank stances.

Bank of England Balances Inflation and Growth Risks

The BoE decision underscored how inflation at 3.8% remains stubbornly above target even as UK GDP growth stagnates at 0% in July. Wage growth at 4.8% continues to fuel concerns about second-round effects, limiting policymakers’ ability to ease further. Governor Andrew Bailey flagged that the timing of additional cuts remains highly uncertain, while balance sheet reduction through gilt sales will be slowed from £100 billion to £72 billion annually. The central bank’s stance is effectively hawkish compared to the Fed’s pivot, keeping sterling relatively supported despite Thursday’s pullback.

Fed Easing Cycle Narrows Policy Divergence

Jerome Powell emphasized that easing is necessary as U.S. unemployment rises, with only 22,000 jobs created in August and jobless claims stabilizing around 240,000. The Fed now projects rates closer to 3.6% by end-2025, compared with 3.9% in June, while GDP growth was revised up to 1.6% from 1.4%. Markets interpreted this as a soft-landing narrative, but the Fed’s pivot widened the policy gap temporarily in favor of the pound. Yet demand concerns remain for the U.S. economy, weighing on the dollar’s strength, which helps keep GBP/USD above 1.35.

Technical Picture Shows Pound Holding Key Levels

Sterling has rallied more than 2.3% from its September lows near 1.3140, and over 7% from April’s tariff-driven sell-off. The pair topped at 1.3728, breaking above a falling trendline, before forming a bearish shooting star near resistance. The 1.3600 level has become immediate support, aligned with the 30-SMA on the 4-hour chart. A break below 1.36 could expose 1.3480 and 1.3360, while defending that level opens the way to retest 1.3720 and the 2025 peak at 1.3787. RSI above 50 signals bullish momentum, though the rejection candle warns of short-term selling pressure.

Macro Outlook for Sterling Against the Dollar

The UK faces inflation stickiness, and even as the BoE holds, the lack of dovish guidance supports the pound. The U.S. on the other hand is clearly entering an easing cycle, with the Fed penciling in up to 50bps more cuts this year. This divergence keeps the GBP/USD bias tilted higher in the medium term. However, near-term risks include weak UK GDP and the possibility that inflation slows too slowly, which would hurt consumer confidence. The pound’s resilience suggests markets prefer sterling over the dollar, but sustainability hinges on macro data in coming weeks.

That's TradingNEWS