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GBP/USD holds above 1.36 ahead of the BoE rate decision

• The BoE is expected to leave rates at 4%
• The central bank is expected to slow its pace of gilt selloffs
• The Fed cut rates by 25 bps as expected
• GBP/USD tests 1.36 support

GBP/USD is holding above 1.36 amid choppy trade in the USD following the Fed rate decision and ahead of the BoE rate decision later today.

The Bank of England is expected to leave interest rates unchanged at 4%, after its fifth rate reduction last month since August 2024. With inflation almost double the central bank’s 2% target and wage growth still high at 4.8% the Bank of England has little reason to move on rates, even as the economy stalls at 0% GDP growth in July.

The BoE rate decision could be viewed as hawkish as doubts emerge over whether the BoE will turn rates again this cycle. BoE governor Andrew Bailey said that there is considerably more doubt about exactly when and how quickly the BoE would cut rates further.

However, the BoE is expected to slow the pace at which it reduces government holdings, although the central bank considers that this has little impact on the economy, although it could impact government borrowing costs. The BoE could slow the pace from £100 billion to £72 billion.

The expected hawkish stance from the BoE comes after the Fed cut rates by 25 basis points as expected and indicated two more rate cuts this year, moving in line with market pricing. The USD reversed higher post the Fed announcement, given that the moves were priced in.

GBP/US forecast- technical analysis

GBP/USD extended its recovery from 1.3330, the September low, rising above its falling trendline and spiking to a high of 1.3725 before reversing back to 1.36 support. Yesterday’s shooting star candlestick could be a bearish reversal signal.

Sellers will need to break meaningfully below the 1.36 level to open the door to 1.3480, the 50 SMA, and the falling trendline support. A break below here negates the near-term uptrend, while a break below 1.3360 creates a lower low.

Should buyers defend the 1.36, they could look to push the price back above 1.37 and 1.3720 toward 1.3790 and fresh 2025 highs.
 

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USD/JPY stays in range post Fed, ahead of the BoJ

• The Fed cut rates by 0.25% and signaled more cuts ahead, as expected
• The BoJ is expected to leave rates unchanged at 0.5%
• USD/JPY continues to trade within a holding pattern

USD/JPY trades modestly higher on Thursday as the price extends its reversal from yesterday’s spike lower to 146.00 following the Federal Reserve rate decision.

As expected to the Fed cut rates by 25 basis points to 4% - 4.25% And indicated it will steadily lower rates across the rest of the year. The dot plot median expectation pointed to two more 25 basis point rate cuts before the end of 2025, moving guidance in line with market pricing. However, the dot plot only points to one rate cut next year.

Fed Chair Powell noted that the Fed cut rates to support the weakening jobs market. However, the Fed also left inflation forecasts unchanged at 3.1% in 2025 while upwardly revising growth to 1.6% from 1.4% this year. Fed Powell also said the central bank doesn’t need to rush easing.

The USD briefly spiked to 96.22 against its major peers but quickly recovered to trade higher on the day.

Attention will now turn to US jobless claims data today for further insight into the health of the US labour market.

The yen is turning its attention to the BoJ rate decision tomorrow. The BoJ is widely expected to leave rates unchanged at 0.5% but the market continues to price in a 25 basis point increase by the end of March, with a 50% probability of it happening within this year.

Attention will be on Ueda's post-meeting press conference for hints on how soon the central bank could resume rate hikes, which it has paused since January, as policymakers weigh up the impact of tariffs.

Japan has signed a trade deal with the US, helping policymakers become increasingly confident that the impact of tariffs won't push Japan into recession. However, policymakers will likely want to scrutinise more data before putting the track trigger on further hikes.

Ongoing political uncertainty, due to the Prime Minister's decision to step down, is another factor that could discourage the BOD from hiking rates soon. Attention is on an election on October 4th for his replacement.
 

USD/JPY forecast – technical analysis

USD/JPY continues to trade in a holding pattern caught between 146.25 on the downside and 148.60 on the upside, also the 200 SMA. The price trades towards the lower end of the range, below the 50 SMA. The setup lends itself to a breakout trade.

Sellers will need to close below the 146.25 level to open the door to 145.00 round number. Meanwhile, buyers will need to rise above the 50 SMA and 1.48.60 to break out above the holding pattern to bring 150.00 into focus.
 

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