Pound Sterling awaits BoE Governor Bailey testimony

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• GBP/USD trades slightly below 1.2600 in the early European session on Tuesday.
• BoE Governor Bailey and other MPC members will testify on policy decisions.
• The near-term technical outlook points to a bearish tilt.

After edging higher during the European trading hours, GBP/USD lost its traction and closed the first day of the week flat near 1.2600. The pair stays on the back foot early Tuesday and trades slightly below that level.

Bank of England (BoE) Governor Andrew Bailey, Deputy Governor Ben Broadbent and Monetary Policy Committee (MPC) members Swati Dhingra and Megan Greene will testify before the UK Treasury Select Committee starting at 10:15 GMT on Tuesday.

“MPs are likely to ask witnesses about the future path of inflation, whether risks of over-tightening monetary policy have increased since the November forecast, and their views on the future of wage growth,” the Treasury Select Committee notes.

Earlier in the day, Goldman Sachs said that they are now expecting the BoE to lower the policy rate in June rather than May. The market positioning suggests that there is a nearly 60% probability of a 25 basis points (bps) reduction in the BoE’s interest rate.

In case Bailey adopts an optimistic tone about the inflation outlook and opens the door for a policy pivot as early as June, the market positioning suggests that there is room for Pound Sterling weakness. On the other hand, GBP/USD could stretch higher in case Bailey, or other policymakers, pushes back against the market expectations for a rate cut in early summer.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart declined slightly below 50 and GBP/USD closed the last two 4-hour candles below the 20-period and the 50-period Simple Moving Averages (SMA), reflecting a lack of buyer interest in Pound Sterling. 1.2600 (50-period SMA) aligns as immediate resistance ahead of 1.2630-1.2640 (100-period SMA, Fibonacci 23.6% retracement of the latest uptrend) and 1.2670 (200-period SMA).

On the downside, supports are located at 1.2540 (Fibonacci 38.2% retracement), 1.2520 (static level) and 1.2500 (psychological level, static level).