Sterling Under Pressure After Dovish BoE Hold, Eyes Sub-1.25 Levels
GBP/USD declined sharply Thursday, touching a 4-week low of 1.2505 after the Bank of England delivered a dovish rate hold in a 6-3 vote. Despite BoE Governor Andrew Bailey emphasizing a gradual rate-cut path, markets interpreted the decision as signaling a more accommodative policy outlook, weakening sterling further. This dovish stance, coupled with narrowing UK-U.S. rate differentials, has amplified bearish sentiment in GBP/USD, which has now erased its year-to-date gains and dropped 1.2% in December alone. The shallow recovery following the Fed’s hawkish guidance on Wednesday and the BoE’s hold highlights the growing vulnerability of the pound.
Technical indicators suggest further downside risks for GBP/USD. Immediate support lies at 1.2505, Thursday’s low, followed by the November 22 trend low at 1.2475 and the May 10 weekly low at 1.2446. A break below these levels could accelerate selling pressure, potentially targeting the 1.2400 psychological mark. Resistance is seen near 1.2563, the post-Fed low, with stronger hurdles around 1.2628, Thursday’s high. The pair’s inability to sustain gains above key levels indicates a bearish bias, compounded by falling UK rate expectations.
Looking ahead, sterling’s trajectory will hinge on upcoming U.S. core PCE inflation data and broader monetary policy trends. With the Fed signaling a hawkish stance and UK growth concerns persisting, the pound remains vulnerable to further declines. Net spec long positioning in GBP/USD may unwind further as markets reassess the BoE’s dovish trajectory, particularly if UK inflation moderates. Sterling’s performance against other G7 currencies, such as GBP/JPY and GBP/AUD, could present alternative trading opportunities, especially as the pound leverages its relative rate advantage.