GBP/USD and GBP/JPY Vulnerable to dovish BOE cut, USD Breaks Lower

The British pound has rebounded ahead of today’s Bank of England (BOE) meeting, helped by a softer US dollar. However, with markets widely expecting a 25bp rate cut to 4.0%, a dovish tilt—either via the voting breakdown or cautious forward guidance—could reinforce downside risks for GBP/USD and GBP/JPY.

Meanwhile, the US dollar broke lower thanks to weak NFP and SIM data alongside Kashkari’s comments on CNBC fuel speculation of Fed cuts, even as services inflation remains sticky. With both currencies trading near key technical levels, traders will be closely watching for confirmation of the next move.

 

US Dollar Breaks Lower, Though BOE Rate Cut Threatens British Pound

The US dollar was broadly lower on Wednesday with pressure building within the Fed to cut interest rates. Kashkari hinted at cuts on CNBC, which likely carried more weigh given the weak employment figures and soft ISM services figures released in prior days. While service prices are on the rise, Fed members are still questioning whether the tariff-induced inflation will be transitory or not. But with economic data souring, a case for cuts and a weaker US dollar is building.

Analysis by Matt Simpson, data source – TradingView

 

• The US dollar index is holding above the 98 handle for now, though the 50-day SMA is nearby at 97.89 for potential support and the daily RSI (2) has entered oversold (below 10)
• EUR/USD reached an 8-day high and is considering a break above the 1.17 handle, though that likely requires the US dollar index to break below the 50-day SMA at least given the euro’s 70% weighing within the US dollar index
• AUD/USD is retracing back above 65c, though the 50 and 20-day SMAs sit at 0.6512, near a high-volume node (HVN) at 0.6513 for potential resistance
• USD/JPY is holding above Tuesday’s small bullish engulfing candle low at 146.62 which suggest a cheeky bounce could be on the cards, though the bias is for USD/JPY to eventually break beneath 146

 

 

 

BOE Set to Cut Rates as Market Prices in Further Easing for British Pound

The Bank of England (BOE) is expected to cut interest rates by 25bp to 4% today. The OIS (overnight index swap) market has already fully priced in a cut, suggesting we may be in for a dovish move. In fact, the 1-year OIS has also priced in at least one more 25bp cut over the next 12 months.

Traders should watch for the voting breakdown at today’s meeting—an increase in votes to cut could imply more easing is on the way. This could weigh further on the British pound, especially if dovish commentary accompanies the decision.

Meanwhile, New Zealand's inflation expectations warrant attention ahead of the RBNZ meeting. Labour costs rose 0.6% in Q2 (above the 0.5% forecast and 0.4% prior), and CPI is also trending higher. While the rise in unemployment to 5.2% might support the case for a cut, persistent inflation could see the RBNZ take a more cautious stance.

Chart prepared by Matt Simpson – data source: LSEG, BOE

 

GBP/USD Technical Analysis: British Pound vs US Dollar

GBP/USD weekly chart:

The British Pound has fallen -4.7% against the US Dollar since its July high, with half of that move occurring during last week’s bearish engulfing candle. As this may represent a single leg within a broader correction—and most corrections tend to unfold in three waves—further downside could be on the cards in the weeks or months ahead.

For context, GBP/USD declined -8.4% from its 2023 high and -9.9% from its 2024 peak, making the current -4.7% retracement relatively shallow by comparison.

Key downside levels for bears include the high-volume node (HVN) at 1.2938, as well as the April low and 61.8% Fibonacci retracement just above the 1.2700 handle—should the pound break lower.

Chart analysis by Matt Simpson - data source: TradingView GBP/USD

 

 

 

GBP/USD daily chart:

While momentum is currently pointing higher on this timeframe, the bias remains for GBP/USD to form a swing high on the daily chart in the near term.

Prices are now testing a confluence of resistance around the June low and 50% retracement level near 1.3370. The 20-day EMA (1.3392) and 61.8% Fibonacci retracement (1.3420) also sit close to trendline resistance, forming a key resistance zone where bears may look to fade into rallies.

• 1.32 and the May low / 38.2% Fibonacci level around 1.3140 are near-term downside targets
• A break below that zone brings the 1.30 handle and the HVN / 50% level at 1.2938 into focus
• A move beneath 1.2900 opens the door to the 61.8% retracement and April low, just above 1.2700

Chart analysis by Matt Simpson - data source: TradingView GBP/USD

 

GBP/JPY Technical Analysis: British Pound vs Japanese Yen

We need to zoom out on GBP/JPY to appreciate the bigger picture view. The rally from 184 in April to nearly 200 in July met resistance around the October 2024 high. Price action since broke a bullish trendline and formed a lower high before bearish momentum accelerated. Prices are retrace against that move, but like GBP/USD, my bias is for a swing high to form on the GBP/JPY daily chart.

The 50-day SMA capped as resistance on Wednesday, though bears could fade into moves towards the 20-day SMA and weekly VPOC (volume point of control) around 197.90 in anticipation of its next leg lower.

194 could be in focus for GBP/JPY bears, which sits near the 38.2% Fibonacci ration, 200-day SMA and weekly VPOC.

Chart analysis by Matt Simpson - data source: TradingView GBP/JPY

 

Key Economic Events for Traders (AEST / GMT+10)

09:50 JPY Foreign Bonds Buying, Foreign Investments in Japanese Stocks, Foreign Reserves (USD) (USD/JPY, EUR/JPY, Nikkei 225)
11:30 AUD Building Approvals, Exports, Imports, Private House Approvals, Trade Balance (AUD/USD, AUD/JPY, ASX 200)
13:00 NZD Inflation Expectations (Q3) (NZD/USD, AUD/NZD, NZX 50)
13:00 CNY Exports, Imports, Trade Balance, Exports (YoY), Imports (YoY), Trade Balance (USD) (USD/CNH, AUD/CNH, CN50)
15:00 JPY Coincident Indicator, Leading Index, Leading Index (Level) (USD/JPY, EUR/JPY, Nikkei 225)
16:00 GBP Halifax House Price Index (GBP/USD, EUR/GBP, GBP/JPY)
16:45 EUR French Current Account, Exports, Imports, Reserve Assets Total, Trade Balance (EUR/USD, EUR/JPY, EUR/GBP)
17:00 CHF Foreign Reserves (USD), Unemployment Rate n.s.a., Unemployment Rate s.a. (USD/CHF, EUR/CHF, SMI)
18:00 EUR ECB Economic Bulletin (EUR/USD, EUR/JPY, DAX)
18:00 CNY FX Reserves (USD) (USD/CNH, AUD/CNH, CN50)
19:00 GBP Mortgage Rate (GBP/USD, EUR/GBP, GBP/JPY)
20:00 EUR Irish CPI, HICP, Unemployment (EUR/USD, EUR/JPY, EUR/GBP)
21:00 GBP BoE Interest Rate Decision, Meeting Minutes, MPC Votes (GBP/USD, EUR/GBP, GBP/JPY)
21:30 GBP BoE Inflation Letter (GBP/USD, EUR/GBP, GBP/JPY)
22:30 USD Continuing Jobless Claims, Initial Jobless Claims, 4-Week Average, Nonfarm Productivity, Unit Labor Costs (EUR/USD, USD/JPY, Nasdaq 100)
23:15 GBP BoE Gov Bailey Speaks (GBP/USD, EUR/GBP, FTSE 100)

00:00 USD FOMC Member Bostic Speaks, Wholesale Inventories, Wholesale Trade Sales (EUR/USD, USD/JPY, Dow Jones)
00:00 CAD Ivey PMI, Ivey PMI n.s.a. (USD/CAD, EUR/CAD, TSX)
01:00 USD 1-Year Consumer Inflation Expectations (EUR/USD, USD/JPY, Nasdaq 100)

 

 

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge