Pound Sterling trades with caution ahead of BoE policy decision

• The Pound Sterling is expected to face volatility against its peers as the BoE is set to announce the monetary policy at around 11:00 GMT.
• Investors expect the BoE to lower interest rates by 25 bps to 4.25%.
• US President Trump is set to announce his first bilateral trade deal, reportedly with the UK, since returning to the White House.

The Pound Sterling (GBP) trades cautiously against its peers in Thursday's European session ahead of the Bank of England's (BoE) interest rate decision at around 11:00 GMT. The BoE is expected to cut borrowing rates by 25 basis points (bps) to 4.25%, making it the fourth interest rate trim in the current monetary expansion cycle, which it started in August last year.

According to analysts at Bank of America (BofA), Monetary Policy Committee (MPC) member Swati Dhingra is expected to vote for a larger-than-usual interest rate reduction by 50 bps, while the rest of the MPC members will favor a 25-bps rate cut. 

BofA analysts add that potential economic risks in the face of tariffs announced by United States (US) President Donald Trump, improving domestic inflation, and declining energy costs have paved the way for an interest rate cut.

For the remainder of the year, the BofA has anticipated that the BoE would reduce interest rates twice.

Daily digest market movers: Pound Sterling edges down against US Dollar

• The Pound Sterling ticks lower to near 1.3280 against the US Dollar (USD) during European trading hours after giving up initial gains. The GBP/USD pair faces pressure as the US Dollar extends its Wednesday's recovery, driven by the Federal Reserve's (Fed) signal that there is "no rush for interest rate cuts" amid a "great deal of uncertainty about tariffs" after leaving interest rates steady in the current range of 4.25%-4.50.
• The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, moves higher around 100.00. 
• The Fed kept borrowing rates steady for the third meeting in a row as risks to inflation have skewed to the upside. "Risks of higher unemployment and higher inflation have risen," Fed Chair Jerome Powell said in the press conference.  "We aim to anchor inflation expectations," he added.
• Comments from Powell also signaled stagflation risks. Powell said that tariffs so far are "significantly bigger than expected" and that "higher inflation, and lower employment" is possible if large increases in tariffs as announced are "sustained".
• Going forward, the major trigger for the Greenback will be progress in bilateral trade deals between the US and its trading partners. On Wednesday, US President Trump said that he will unveil a bilateral deal closed with a trading ally on Thursday. 
• A report from The New York Times (NYT) has shown that the nation with which the White House will announce its first trade deal will be the United Kingdom (UK).. The impact of the US-UK trade deal is expected to be positive for the US Dollar, whose safe-haven status has been somewhat dented amid uncertainty over the global economic outlook in the face of Trump's new economic policies. However, the impact of any deal is expected to be limited as Britain already holds a trade deficit with the US.
• Another major trigger for Forex markets will be trade discussions between the US and China, which have been confirmed for Saturday in Switzerland. Financial market participants expect the meeting to be more about de-escalating the trade war than negotiating deals. "My sense is that this will be about de-escalation, not about the big trade deal," US Treasury Secretary Scott Bessent said on Tuesday.

Technical Analysis: Pound Sterling retraces below 1.3300

The Pound Sterling extends Wednesday's correction below 1.3300 against the US Dollar on Thursday. Still, the overall outlook of the pair remains bullish as all short-to-long Exponential Moving Averages (EMAs) are sloping higher.

The 14-day Relative Strength Index (RSI) slides into the 40.00-60.00 range, indicating that bullish momentum has concluded. However, the bullish bias remains intact.

On the upside, the three-year high of 1.3445 will be a key hurdle for the pair. Looking down, the April 3 high around 1.3200 will act as a major support area.

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