GBPUSD May Fall, Bank of England Set for Dovish UK Rate Rise

GBP price, news and analysis:

• The Bank of England is expected to increase UK interest rates Thursday but signal caution further ahead.
• Meanwhile, Brexit and UK politics will likely make further gains for GBPUSD difficult.

Our trading forecasts for Q3 have been published; you can find the GBP guide here.

Dovish UK interest rate rise expected

The Bank of England is set to increase UK interest rates to 0.75% from 0.50% Thursday but cautious comments from Governor Mark Carney and the possibility of some members of the Bank’s monetary policy committee dissenting from the decision will likely send GBPUSD lower.

The likelihood of a rate hike is now almost fully priced in to the markets, with a probability of 86.4%, but one or even two MPC members could vote to leave rates on hold and Carney could well strike a downbeat tone on Super Thursday, when the Bank’s decision is accompanied by the publication of its quarterly Inflation Report and a Carney press conference.

Source: Thomson Reuters

Meanwhile, both a difficult political backdrop, with UK Prime Minister Theresa May’s position still precarious, and ongoing concerns about Brexit could keep GBPUSD from climbing above the psychologically-important 1.32 level.

GBPUSD Price Chart, Hourly Timeframe (July 16-30, 2018)

Chart by IG

A survey by the broadcaster Sky shows 78% of UK citizens think the government is doing a bad job on Brexit, with British public opinion shifting sharply against it, and most people wanting a referendum to choose between the deal suggested by the government, no deal and remaining in the EU.

GBPUSD technical analysis

From a technical perspective, there is strong resistance around 1.32 not just because it is a round number. GBPUSD rejected that level twice on July 26 and a downward sloping trendline connecting the recent lower highs also comes in around that mark.

Moreover, retail traders are now 68% long and only 32% short GBPUSD. From a contrarian viewpoint, that suggests the outlook is bearish.

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex