Hawkish Cut Underscores Inflation Resolve, Trade Risks Linger

Key Takeaways:

*BoE’s hawkish 25bps cut and split vote signal policy caution, keeping Sterling supported despite slowing wage growth and rising unemployment.

*Sticky services inflation and a revised 4% September CPI forecast reduce odds of aggressive easing, anchoring GBP above 1.34.

*While UK fiscal risks and Trump’s tariff threats loom, markets view the BoE as more resolute than ECB peers, driving EUR/GBP lower.

Market Summary:

The British Pound held firm near recent highs after the Bank of England delivered a hawkish rate cut that defied broader easing expectations. Despite lowering the benchmark rate by 25 basis points to 4%, the BoE struck a resolutely cautious tone, emphasizing that future cuts would be gradual and data-dependent. Governor Andrew Bailey’s remarks alongside a narrow 5–4 split vote and upgraded 2025 growth forecasts bolstered the view that the UK central bank remains concerned about inflationary persistence.

Sterling’s resilience has been driven by a complex interplay of domestic inflation dynamics and geopolitical crosscurrents. UK CPI accelerated to 3.6% year-over-year in June, well above the BoE’s 2% target, while services inflation remains sticky. Although wage growth has slowed and unemployment continues to tick higher, the central bank dismissed the need for aggressive easing, highlighting sector-specific distortions such as hospitality weakness due to recent minimum wage hikes.

From a policy standpoint, the market has reined in expectations for further cuts. Traders are now pricing just 17–21 basis points of additional easing in 2025 down from 25bps prior to the July decision suggesting confidence in the BoE’s inflation vigilance. Meanwhile, the Pound’s break above key resistance at 1.3400 reflects both improving technical sentiment and relative monetary policy divergence versus peers like the ECB.

However, external risks remain. Renewed concerns around global trade particularly Donald Trump’s proposed reciprocal tariffs could weigh on UK export demand. While GBP has so far weathered the geopolitical noise, fiscal uncertainty and potential regulatory shifts could inject further volatility.

Near-term direction for the Pound will hinge on incoming inflation data and further clarity on global trade developments. For now, the BoE’s hawkish stance offers a floor under GBP, but upside may be capped by global growth fragility and lingering political uncertainty.

Technical Analysis

GBPUSD, H4

GBP/USD has decisively broken above its descending channel and is now accelerating to the upside, trading near 1.3445 as of this H4 snapshot. The recent rally gained traction after price cleared the previous resistance-turned-support at 1.3420, confirming a bullish reversal from the July 29 low of around 1.3160.

This breakout was preceded by a period of accumulation just above the 1.3290 support, where price consolidated before launching higher. The pair now faces immediate resistance at 1.3535, a zone that marked previous swing highs in early July. A sustained push above this area could expose the next resistance around 1.3650.

Momentum indicators are confirming bullish conditions. RSI has entered overbought territory at 71, which may suggest a short-term pullback is possible, though strong trends often sustain overbought readings. MACD remains in bullish alignment with its signal line and histogram both expanding, suggesting continued buying interest.

As long as GBP/USD holds above 1.3420, the path of least resistance remains upward. However, traders should be cautious of near-term profit-taking around 1.3535 if bullish momentum stalls.

Resistance Levels: 1.3535, 1.3650

Support Levels: 1.3420, 1.3290