On Friday, the British pound went through a wild ride against the US dollar. In early Asian trading, the GBP/USD pair went up to approximately 1.2525, bouncing back from its five-month low of 1.2445. This rise was a result of the Bank of England's unexpected dovish stance during its policy meeting. Although the BoE kept interest rates at 5.25% for the sixth time in a row, they hinted at the possibility of rate cuts next month if inflation continues to decline. Governor Bailey also acknowledged this possibility but emphasized the importance of data dependence on inflation, the economy, and the labor market. Despite initially helping the pound, this dovish shift from the BoE could potentially limit the GBP/USD pair's gains due to the prospect of lower interest rates in the UK. Additionally, comments from San Francisco Fed President Mary Daly added more complexity and uncertainty about the US Federal Reserve's plans. Daly expressed concern about heightened inflation uncertainty and the potential need for a prolonged period of current interest rates to combat it.
The GBP/USD pair struggled to surpass crucial technical resistance levels despite some initial gains. Although it managed to exceed the 200-day moving average, it failed to breach the 50-day moving average and the downtrend line that was established since March. This technical weakness suggests that it may pull back towards April's support level of 1.2405. Should this happen, the pair may retest its five-month low at 1.2298, and a break below this area may expose November 2023 support at 1.2186. Nevertheless, the pound still has some chances. Renewed buying pressure could push the pair back above the downtrend line, targeting the April-May resistance zone of 1.2564. A decisive break above this area could pave the way for a potential turning point near 1.2632, and overcoming this hurdle might even challenge the April peak of 1.2708. In general, the GBP/USD pair is facing crosscurrents. The Bank of England's dovish stance and potential policy divergence with the Federal Reserve create headwinds for the pound. However, technical indicators hint at potential buying opportunities if the pair can overcome key resistance levels. The near-term direction of the GBP/USD will be determined in the coming days.
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