GBP/USD forecast: signal as Morgan Stanley, HSBC change tune on BoE

The British pound has come in the spotlight this week as traders adjust their Bank of England (BoE) interest rate cuts outlook. The GBP/USD exchange rate was trading at 1.2692 on Friday, down from last Friday’s high of 1.2760.

BoE interest rate cuts bets

The GBP/USD pair pulled back even after the UK published mixed economic data and Rishi Sunak called for a snap election in July.

Data released on Wednesday revealed that the country’s inflation dropped at a slower pace than expected. The headline CPI tumbled to 2.4% while the core figure, which excludes the volatile food and energy products fell to 3.6%. 

Most analysts were expecting the CPI figure to come in at or below the BoE’s target of 2.0% because energy prices have dropped. In fact, a report by the energy regulator said that energy bills will drop 7% in July.

The falling inflation figures has led to more confidence among consumers. Data by Gfk showed that consumer confidence rose for the second straight month in May. It moved to minus 17, better than the expected minus 18.

However, another report showed that retail sales remained under pressure in April. According to the Office of National Statistics (ONS), the headline retail sales dropped by 2.3% MoM and 2.7% YoY, worse than the expected drop of 0.5% and 0.2%.

Core inflation, which excludes the volatile food and energy products, dropped to 2.0% MoM while the core CPI crashed by 3.0%. These figures, together with the weak flash manufacturing and services PMIs, mean that the economic growth is not as strong as expected.

Analysts have started ruling our a June rate cut by the BoE. Economists at Morgan Stanley, Goldman Sachs, and HSBC believe that the bank will not cut rates in June as widely expected. Instead, they expect the cut to happen in August, a month after the snap election. A HSBC analyst said:

“The June MPC meeting was always likely to be a close call and and punchy inflation data may have knocked out the prospect of a cut.”

GBP/USD technical analysis

GBP/USD chart by TradingView

The GBP to USD exchange rate has bounced back after forming a morning star pattern on April 22nd. As it jumped, the 25-day and 50-day Exponential Moving Averages (EMA) have formed a bullish crossover. 

It has moved to the first resistance of the Woodie pivot point while the MACD indicator has moved above the neutral point. The Relative Strength Index (RSI) has pointed downwards after nearing the overbought level.

Therefore, the pair will likely continue rising as buyers target the second resistance at 1.2900, which coincides with its highest point on May 8th.

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