• GBP/USD outlook improves despite BOE’s rate cut.
• The MPC vote came in favor of a rate cut by a 5-4 split.
• Macroeconomic UK data could limit the upside potential

The GBP/USD outlook has significantly improved as the price reclaims the 1.3400 handle after the BoE’s rate decision. The price is 0.56% up on the day, near 1.3410, at the time of writing.

The Bank of England reduced its rates by 25 bps, as widely expected, making a fifth cut in this easing cycle as the UK economy struggles with a growth slowdown, swelling unemployment, and persistent inflation.

The nine members of the Monetary Policy Committee voted by a majority of 5-4 to cut the rates from 4.25% to 4.0%. The MPC stated, “There has been substantial disinflation over the past two and a half years, following previous external shocks, supported by the restrictive stance of monetary policy. That progress has allowed for reductions in the bank rate over the past year.”

Recent economic data have revealed the weak state of economic recovery as business confidence and consumer spending have been under pressure. The July employment data also shows slow wage growth and rising unemployment. Trump’s renewed tariffs have also dented consumer and business sentiment as the global trade and input costs are disrupted.

Despite the macroeconomic weakness, inflation remains stubbornly high. The UK CPI is at 3.6% y/y, which is well above the 2% target of the central bank.

The UK GDP growth is subdued, aligned with a gradually cooling labor market. The economy seems to have a margin of slack. Although the trade policy uncertainty has diminished partially, the geopolitical and domestic risks continue to worry.

Market participants are currently pricing in a high probability of another rate cut in 2025, potentially reducing the base rate to 3.75%.
 

GBP/USD Technical Outlook: Bullish Above 1.3400
 

(Click on image to enlarge)

GBP/USD 4-hour chart
 

The GBP/USD 4-hour chart shows a solid recovery with five consecutive bullish candles, testing the support-turned resistance above the 1.3400 mark. The pair is wobbling around the 20-period SMA, showing no apparent bias. The 1.3500 mark near 100-day MA could be tested if the price manages to clear the current resistance. The RSI also shows a neutral outlook as the level is near 50.0. However, the indicator shows a sharp upside from the overbought zone, indicating a potential for more upside.

On the flip side, closing below the 1.3400 area may raise concerns for the buyers, and in case of dollar’s upside continuation, the pair could test today’s lows of 1.3345 ahead of round number support at 1.3300.

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