Bearish view

• Sell the GBP/USD pair and set a take-profit at 1.2300.
• Add a stop-loss at 1.2550.
• Timeline: 1-2 days.

Bullish view

• Buy the GBP/USD pair and set a take-profit at 1.2550.
• Add a stop-loss at 1.2300.

(Click on image to enlarge)

The GBP/USD exchange rate retreated after the Bank of England (BoE) slashed interest rates on Thursday and traders boosted their expectations. It dropped to 1.2400, down from last week’s high of 1.2550.
 

BoE decision and US inflation data

The GBP/USD pair retreated after the BoE delivered its third interest rate decision of the cycle on Thursday. As was widely expected, the bank cut rates by 0.25% a move aimed at supporting the already-slowing economy,

The most recent data showed that the country’s inflation retreated to 2.5% in December, while the economic growth has stalled. As such, the bank hopes that the rate cuts will help to boost the economy by encouraging lending.

Economists now expect that the BoE will deliver three more rate cuts this year, more than the Federal Reserve, which is expected to slash two times.

The GBP/USD pair also retreated after the US nonfarm payroll (NFP) data. These numbers revealed that the economy added over 140k jobs in January as the unemployment rate fell to 4.0%. It was the second month that the rate dropped, which is a positive side.

The Federal Reserve is not focusing on the job market, which it believes is still strong. Instead, officials are focusing on inflation, which has remained significantly above 2% since 2022. The most recent data showed that the headline inflation rate rose to 2.9% in December last year.

The market will watch this week’s inflation report closely since it will help to determine the next move by the Federal Reserve. Economists expect the data to show that the headline CPI remained at 2.9% in January.

The other key data to watch will be the UK GDP report, which will come out on Friday. Economists expect the report to reveal that the economy contracted by 0.1% in the fourth quarter.
 

GBP/USD technical analysis

The GBP/USD pair has retreated in the past few days as investors focused on the divergence between the Fed and the BoE. It moved from a high of 1.2550 to a low of 1.2400. It retreated after retesting the 50-day Exponential Moving Average, where it found substantial resistance.

The pair has moved between the Woodie pivot point and its first resistance. The Relative Strength Index (RSI) has drifted downwards, moving from the neutral point of 50 to about 47.

Therefore, the pair may continue falling as traders target the next key support at 1.2295, its lowest swing in April last year.

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