GBP/USD Price Analysis: Dollar Weakness Briefly Lifts Pound

• The pound recovered on Tuesday as the dollar weakened.

• BoE policymakers assumed a more dovish stance last week.

• Investors will remain cautious as they await more data on US inflation.

The GBP/USD price analysis shows bullish optimism as the pair stages a recovery fueled by the dollar’s decline. However, beneath the surface, fundamental factors hint at potential downside ahead for the pair. 

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After the Bank of England’s dovish policy meeting, the pound recently made new lows. Meanwhile, the dollar pulled back from recent highs as investors took profits after last week’s rally. However, UK and US fundamentals support more declines for the pair.

At last week’s meeting, BoE policymakers assumed a more dovish stance, raising bets that the central bank will cut rates in June. This is a significant shift from the previous outlook. Initially, investors had expected the BoE to be among the last central banks to cut interest rates.

Moreover, inflation in the UK remained much higher than in other G10 economies. However, with inflation easing, policymakers no longer call for rate hikes. This sets the stage for a weaker pound.

On the other hand, US inflation has remained stubborn, leading to caution among Fed policymakers. Consequently, there is less confidence that inflation is consistently declining, leading to uncertainty about the rate-cut outlook. In this case, the dollar should be strengthening. Therefore, the recent pause might be brief before the rally continues.

However, investors will remain cautious as they await more data on inflation. On Friday, the US will release the core PCE price index. This report will play a significant role in shaping the outlook for Fed interest rates.

GBP/USD key events today

• US CB Consumer Confidence

GBP/USD technical price analysis: Rebound pauses at the 1.2650 barrier

On the charts, GBP/USD has recovered to retest the recently broken 1.2650 key level as resistance. However, the bias is still bearish as the price trades below the 30-SMA with the RSI under the pivotal 50 mark. 

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The price recently broke below a strong bullish trendline and the 1.2650 key support, confirming a change in direction. Therefore, the downtrend will continue if the 1.2650 level holds firm as resistance. The next target for the decline is at the 1.2550 support level. However, there is a chance the price will break above to retest the trendline before continuing lower.

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