Forex Analysis & Reviews: 08.05.2025 - The Bank of England Is Ready...

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InstaForex - Official partner of Dragon Racing

08.05.2025 09:21 AM

The Bank of England Is Ready to Cut Rates

The Bank of England is expected to cut interest rates by a quarter of a percentage point today and signal that another reduction is likely in June. This could potentially put the central bank on track for its first back-to-back rate cuts since 2009, as the U.S. trade war clouds growth prospects. The British pound, as seen on the chart, is reacting quite painfully to the development.

Economists anticipate that U.K. policymakers will reduce the base rate from 4.5% to 4.25%, and at least one of the nine members of the Monetary Policy Committee may vote for a half-point cut. Futures markets are also pricing in a quarter-point cut and see strong odds for another reduction at next month's meeting.

It's worth recalling that the Bank of England cut rates three times last year starting in August and has held them steady since February, out of concern over Trump's tariff policies and a surge in inflation. However, given that prices have been falling steadily, the central bank likely decided that it's better to support the economy now than wait for an uncertain reaction to Trump's trade war later.

This decision will certainly affect the pound, which is likely to show some short-term volatility. Moreover, it could encourage other central banks to take similar steps to support their economies amid growing global uncertainty. Still, it's important to understand that a rate cut is not a cure-all. Its effectiveness largely depends on businesses' willingness to invest and consumers' readiness to spend. If the economic outlook remains unclear, the rate cut may not be sufficient to spur growth.

Even though today's easing decision by the Bank of England is expected to be unanimous, some members may vote for a more aggressive cut. This would signal strong support for the dovish stance that has been building within the bank. Swati Dhingra, the most dovish member of the Bank of England, and Alan Taylor along with Catherine Mann, had previously voted for an unusually large half-point cut, but in recent meetings joined the majority in keeping rates unchanged.

As for forward guidance, the Bank of England hasn't changed its forecasts since February, when it told investors to expect gradual and cautious rate cuts. The word "cautious" was added to allow the committee time to assess the impact of Trump's trade policy. If it is removed from today's projections, it would signal that the balance of risks has shifted from inflation toward slower growth—another sign that easing is likely to continue.

This would clearly be a bearish signal for the British pound and its longer-term bullish outlook.

Technical Outlook for GBP/USD:

Buyers of the pound need to reclaim the nearest resistance at 1.3365. Only this will allow them to target 1.3399, above which it will be quite difficult to break out. The ultimate upside target is the 1.3437 level. If the pair falls, bears will attempt to take control at 1.3285. If successful, a break of this range will deal a serious blow to the bulls and push GBP/USD toward a low of 1.3260, with a possible move to 1.3235.

Technical Outlook for EUR/USD:

Buyers now need to focus on reclaiming the 1.1340 level. Only then will they be able to aim for a test of 1.1380. From there, it could reach 1.1420, but doing so without support from major players will be quite difficult. The furthest upward target is 1.1450. If the instrument declines, I expect serious buying activity to appear only around the 1.1305 level. If not, it would be better to wait for a retest of the 1.1270 low or open long positions from 1.1230.

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*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.