- The Bank of England cut interest rates by 25-bps on Thursday.
- Two BoE policymakers were ready for a more significant rate cut.
- Economists expect slower US job growth in January.
The GBP/USD outlook points south after an unexpected call for a more significant rate cut during the Bank of England policy meeting. At the same time, the dollar rebounded as traders looked forward to the US nonfarm payrolls report for more clues on future Fed moves.
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The Bank of England cut interest rates by 25-bps on Thursday as expected. However, surprisingly, the vote count revealed that two policymakers were ready for a more significant rate cut. This came after recent data revealed weakness in the UK economy. Nevertheless, Governor Bailey noted that the central bank would stick to a gradual and cautious approach. Moreover, the BoE forecasted higher inflation and weaker growth. A rapid economic slowdown could force policymakers to focus on growth rather than inflation.
Meanwhile, the dollar recovered on Friday as traders awaited the US monthly employment report. Previously, the US currency collapsed after Trump paused tariffs on Canada and Mexico, easing fears of global trade wars. The focus has now shifted to economic data.
Economists expect slower job growth in January, with the economy adding 169,000 jobs. In the previous month, there were 256,000 new jobs. Meanwhile, the unemployment rate might hold steady at 4.1%.
GBP/USD key events today
- Average Hourly Earnings m/m
- Non-Farm Employment Change
- Unemployment Rate
GBP/USD technical outlook: Bears take charge after RSI divergence
On the technical side, the GBP/USD price has dropped to the 1.2351 support level after the RSI made a bearish divergence. Initially, the price made a second attempt to break above the 1.2501 resistance level. However, despite making a higher high, bulls failed to sustain a move above the resistance. At the same time, the RSI made a lower high, signaling weaker bullish momentum. This eventually led to a break below the 30-SMA.
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Currently, the price is retesting the 30-SMA as resistance. If it breaks above, GBP/USD will climb to retest the 1.2501 resistance level. On the other hand, if the price bounces lower, it will revisit the 1.2351 support level. A break below this level will make a lower low, confirming a new downtrend. Moreover, it will allow the price to reach the 1.2200 support level.
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