BoE Holds Steady as Inflation Risks Cloud Outlook

 Key Takeaways:

*The Pound weakened as the BoE struck a cautious tone and flagged persistent inflation risks.

*Rising geopolitical tensions and a resilient U.S. dollar kept GBP under pressure.

Market Summary:

The British Pound has come under pressure this week, weighed down by a cautious Bank of England (BoE), mixed domestic data, and heightened geopolitical tensions that have supported the safe-haven U.S. dollar. While the GBP had previously drawn strength from resilient growth and expectations of policy normalization, recent developments have undermined investor sentiment.

A key factor behind the Pound’s softness has been the BoE’s decision to keep rates on hold at 4.25% in June, with a notable 6-3 split vote highlighting growing internal support for rate cuts. Governor Bailey reiterated a “gradual and careful” path to easing, suggesting potential rate reductions in August and November. However, persistently high inflation—now expected to peak at 3.7% in September—and elevated energy prices linked to Middle East tensions continue to complicate the easing narrative. In contrast, the Federal Reserve maintained a steady rate path but raised its longer-term dot-plot, providing additional lift to the U.S. dollar.

UK data has also painted a mixed picture. The labor market is starting to show strain, with slower wage growth and cooling services inflation. May CPI eased to 3.4%, but remains well above the BoE’s 2% target, reducing the scope for aggressive easing. Meanwhile, April GDP contracted by 0.3%, reinforcing concerns about underlying economic fragility.

Geopolitical risk has further weighed on the Pound, as renewed conflict in the Middle East—particularly fears of U.S. strikes on Iran—has spurred a risk-off environment. This has boosted the dollar and driven oil price volatility, raising the threat of second-round inflation effects in the UK and muddying the BoE’s policy outlook.

For now, the British Pound remains vulnerable to both domestic and external headwinds. The BoE’s dovish lean, softening economic momentum, and geopolitical instability are keeping the GBP on the defensive. Unless UK inflation cools more rapidly or global risk appetite improves, sterling is likely to remain under pressure in the near term.

Technical Analysis 

GBPUSD, H4

GBP/USD is attempting a modest recovery after recently breaching key short-term support levels, following the formation of a bearish double-top pattern near the 1.3600 region. Price action has since rebounded from the 1.3400 area and is now hovering just below the 38.2% Fibonacci retracement level around 1.3485, suggesting early signs of a corrective bounce—but with the broader bias still skewed to the downside.

Momentum indicators remain mixed. The RSI has edged up to 49, recovering from recent lows but still struggling to reclaim the neutral 50 mark, implying cautious sentiment and a lack of strong bullish conviction. Meanwhile, the MACD is attempting to stabilize following a bearish stretch. Although the histogram has turned slightly positive, the MACD line remains below the signal line—indicating that downside momentum is slowing, but not yet reversed.

If GBP/USD manage to break and hold above the 1.3510–1.3530 resistance zone, it may signal a deeper retracement toward the 1.3565 level. However, failure to clear that barrier would likely reinforce bearish pressure and keep the pair vulnerable to a retest of the 1.3450 and 1.3400 support levels. Price behavior around current levels will be pivotal in determining whether this is merely a technical rebound or the beginning of a broader bullish correction.

Resistance levels: 1.3510, 1.3530

Support levels: 1.3450, 1.3400

GBPJPY, H4

GBP/JPY continues to trend higher, holding firmly above its ascending trendline support drawn from the late-April lows. The pair recently rebounded from the 194.10 region, reaffirming bullish intent and now challenges resistance near 196.20. Price action remains constructive, with successive higher lows and resilient dips indicating sustained buyer demand.

Momentum indicators support this bullish bias. The RSI is currently tracking at 58, comfortably above the neutral 50 threshold, indicating building bullish momentum without yet entering overbought territory. Meanwhile, the MACD has produced a fresh bullish crossover, with both the MACD and signal lines rising above the zero mark and green histogram bars beginning to widen—an encouraging sign of renewed upside momentum.

A firm break above the 196.20 resistance could open the door for a retest of the psychological 198.00 level and beyond. However, failure to clear that barrier may see price gravitate back toward the ascending trendline and interim support at 194.10. As long as the trendline remains intact, the broader bullish structure remains valid.

Resistance levels: 196.20, 198.00

Support levels: 194.10, 192.00