BoE’s Narrow Cut Stuns Markets And Lifts Sterling
The Bank of England’s decision to trim its benchmark rate by 25 basis points to 4.00 percent on a razor-thin 5–4 vote has paradoxically propelled the pound higher. Four dissenters argued inflation at 3.6 percent y/y justified holding rates, while one hawk pushed for an even larger 50 bp reduction—underscoring the committee’s internal divide. Sterling spiked from an overnight low of 1.3350 to 1.3436 as markets re-priced future BoE moves at a more cautious pace, implying elevated real yields could persist despite modest easing.
UK Growth Stalls Even As Inflation Cools
Recent figures reveal the UK economy barely grew—just 0.1 percent in Q2—while unemployment climbed to 4.1 percent. Consumer spending has lost steam amid tepid wage growth and lingering cost-of-living pressures. Yet headline CPI has tumbled from 2023 highs above 10 percent down to 3.6 percent in July, indicating imported and energy shocks have abated. This tension between sluggish activity and moderating inflation forces the BoE to tread carefully, leaving sterling acutely sensitive to any change in the timing of future cuts.
US Labour Weakness Undermines The Dollar
Across the Atlantic, US weekly jobless claims unexpectedly jumped to 228 000—the highest since 2021—while continuing claims rose above 1.97 million. Softening labour data has sent the US Dollar Index below 98.30, its lowest in three weeks, as markets now price a greater than 90 percent chance of a Fed rate cut by September. The resulting dollar fatigue has further boosted GBP/USD, as traders embrace a widening divergence between Fed and BoE trajectories.
Technical Breakout Targets Key Milestones
On the four-hour chart, GBP/USD’s decisive break above the 100- and 200-period moving averages confirms an intermediate-term shift higher. The pair has formed an ascending triangle with higher lows at 1.3234, 1.3333 and 1.3365, pointing directly at the 1.3500 handle. The RSI at 63 and a rising MACD histogram suggest ample room for further gains before overbought extremes. Short-term retracements may find support at 1.3365–1.3370 or the triangle base at 1.3333, while a weekly close above 1.3500 would likely open April’s 1.3617 high and the 1.3700 psychological zone.
Positioning, Flows And Sentiment Dynamics
Open interest in sterling-dollar futures has collapsed to April lows, reflecting a rapid unwinding of pound bears. OIS markets now expect only two to three BoE cuts by year-end, versus four cuts a week ago. Retail sentiment surveys show net-long pound positioning for the first time in eight weeks—heightening squeeze risk if prices jump. Meanwhile, GBP/USD volatility swaps have tumbled to mid-July lows, signaling complacency that could be shattered by unexpected BoE minutes or fresh US labour data.
Key Events And Risks Ahead
The upcoming BoE minutes will be parsed for clues on the size and sequencing of future cuts, especially given the 5–4 vote split. Tomorrow’s US non-farm payrolls release will determine whether jobless claims weakness is a trend or a blip, with implications for dollar strength. Sterling’s next frontier remains 1.3500, but a firmer dollar or a dovish pivot from the Fed could quickly cap upside. Geopolitical developments—US-China trade talks, UK fiscal updates—may also inject fresh volatility. For now, however, the alignment of BoE caution and Fed impatience sets the stage for a sustained GBP/USD rally into the autumn, making buy-on-dips the most attractive strategy.
