We have been bearish of GBP/USD in recent articles and the GBP has fallen back but mounted a rally on Friday which we believe is a sell. Our logic in terms of the fundamentals, sentiment and key technical levels below...

Bank of England Meeting

In terms of the Bank of England Meeting - Five members of the Monetary Policy Committee (MPC), including Governor Andrew Bailey, voted to reduce the Bank Rate by 25 basis points while four, including chief economist Huw Pill, backed another hold. 

The decision means interest rates now stand at 5.0 percent. Inflationary pressures have eased enough that we’ve been able to cut interest rates today,” Bailey said. “Ensuring low and stable inflation is the best thing we can do to support economic growth and the prosperity of the country,” he added. A few views on the cut...

"The cut feels tentative, given the MPC's split vote of 5-4, indicating that hawks within the committee remain concerned about wage growth and service sector inflation. Huw Pill's decision not to vote for a rate cut feels slightly odd, as it stands at odds with the bank's own inflation forecasts." (Joe Tuckey, Head of FX Analysis at Argentex Group PLC.)

"We continue to expect the MPC to cut Bank Rate again in November. We then expect the Committee to reduce the policy rate at a quarterly pace thereafter until Bank Rate hits 3% in 2026-Q3," (James Moberly, an economist at Goldman Sachs.)

“BoE’s decision to cut its policy rate by 25bp to 5.00% was a close call. The vote was split 5-4 and the decision was again ‘finely balanced’ for some members. The split implies no rapid succession of cuts. Governor Bailey added a hawkish element to the vote, saying the MPC will be careful not to cut interest rates too quickly or too much. The rate cut was accompanied by encouraging changes in economic forecasts. We continue to anticipate a cut per quarter going forward, as we did prior to this meeting, with the next move forecasted for November.” (RABOBANK)

Our view is the Bank of England will now cut aggressively and we may see another cut in September as they try to support the economy which is in dire straits but on Friday we ad a rally as on the other side of the pair we saw a poor NFP in the US:

On the US Side of the Pair US and UK Rate Expectations 

Economists think the Fed could go with an outsized 50 bp cut in September or deliver an inter-meeting cut. "The totality of today’s jobs report is leading markets to signal not one but two concerns: a growth scare, and worries about a Federal Reserve policy mistake," (Mohamed A. El-Erian, former CEO of Pimco and current advisor to Allianz and Gramercy)

We dont think the Fed will overreact on one piece of data and do an inter-meeting cut but a September cut does look highly likely but that's discounted anyway.

Historically, a surge in rate cut expectations at the Fed tends to result in a similar outcome for Bank of England expectations which has seen the GBP up but not significantly.

Sentiment

The main reason to be bearish of the GBP is the big net long position that still remains near a record.

We think the GBP has more downside against the USD and also in many crosses.

Technical Analysis

Our view of the key levels of support and resistance to look out for below.