Pound Sterling corrects against US Dollar ahead of BoE's monetary policy decision

• The Pound Sterling retraces against the US Dollar ahead of the monetary policy announcement by the BoE.
• Investors expect the BoE to hold interest rates steady, with a 7-2 vote split.
• The Fed signals two more interest rate cuts this year.

The Pound Sterling (GBP) demonstrates a mixed performance against its major peers on Thursday ahead of the Bank of England's (BoE) monetary policy decision at 11:00 GMT.

Traders are nearly certain that the BoE will hold interest rates steady at 4%, with a 7-2 majority. The reasoning behind these expectations is elevated United Kingdom (UK) price pressures, with the latest CPI reading showing that inflation held at 3.8%, the highest level since early 2024.

BoE Monetary Policy Committee (MPC) members Swati Dhingra and Alan Taylor are expected to be the two who would support further monetary policy expansion.

In the August monetary policy meeting, Taylor voted for a 50 basis points (bps) interest rate reduction and later opted for a 25 basis points (bps) for a breakthrough on the monetary policy decision. In his speech before the House of Commons' Treasury Committee earlier this month, Taylor argued in favor of reducing interest rates to address weak economic growth, citing that high inflation is unlikely to be persistent.

Taylor added that monetary policy restrictiveness in the current scenario could lead to "inflation actually undershooting the target and economic activity weak or in recession".

If the BoE keeps interest rates on hold, financial market participants would like to know when the central bank will resume its monetary easing. In the August policy meeting, BoE Governor Andrew Bailey guided a "gradual and careful" monetary expansion approach.

Daily digest market movers: Pound Sterling retraces against US Dollar

• The Pound Sterling corrects further to near 1.3585 against the US Dollar (USD) during the European trading session on Thursday. The GBP/USD pair retraces from an over two-month high of 1.3725 posted on Wednesday as the US Dollar rebounds after the Federal Reserve's (Fed) monetary policy announcement.
• The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, extends Wednesday's recovery move to near 97.15 at the time of writing.
• On Wednesday, the Fed restarted the monetary-easing campaign with a 25-bps reduction in interest rates that pushed them lower to 4.00%-4.25%. This was the first interest rate cut by the Fed this year. The United States (US) central bank adjusted policy rates amid slowing job growth, even as inflation remains well above the 2% target.
• "Demand for labour is down a little more sharply than supply of labour, and I can no longer say the labor market is solid," Fed Chair Jerome Powell said in the press conference.
• Meanwhile, the Fed has also signaled two more interest rate cuts in the remainder of the year and one each in 2026 and 2027.
• In Thursday's US session, investors will focus on the Initial Jobless Claims data for the week ending September 12, which will be published at 12:30 GMT. The number of individuals filing for jobless benefits for the first time are expected to come in lower at 240K than the prior reading of 263K. Investors will closely monitor jobless claims data as Fed dovish speculation intensified last week after claims rose to the highest reading in four years.

Technical Analysis: Pound Sterling retests Ascending Triangle breakout

The Pound Sterling falls to near 1.3585 against the US Dollar on Thursday. The GBP/USD pair corrects and tests the breakout of the Ascending Triangle chart pattern delivered on Monday. The upward-sloping 20-day Exponential Moving Average (EMA) around 1.3535, suggesting that the near-term trend is bullish.

The 14-day Relative Strength Index (RSI) strives to hold above 60.00. A fresh upside momentum would emerge if the RSI manages to do so.

Looking down, the August 1 low of 1.3140 will act as a key support zone. On the upside, the July 1 high near 1.3800 will act as a key barrier.