Rate Decisions Loom: Markets Brace for BoE Cut and Fed Signals

GBP

Sterling eased off recent highs against the US dollar last week. GBP/USD touched a peak around 1.3445 but slipped towards the 1.3250 level by Friday, as a stronger US dollar and softer UK economic data weighed on sentiment. UK services PMI for April came in just below the 50 mark, indicating flat to contracting activity, which has raised concerns about near-term growth prospects.

Attention now turns to the Bank of England’s policy meeting on Thursday. Markets are pricing in a high probability (around 85%) of a 25 basis point rate cut, bringing the Bank Rate down from 5.25% to 5.00%. UK inflation eased to 2.6% in March, but April data could be skewed by utility price changes. With global trade tensions re-emerging, the BoE’s outlook is expected to be cautious.

Technically, GBP/USD remains range-bound. Momentum indicators are mixed, but the 50- and 200-day moving averages show a mildly supportive trend. Key resistance sits in the 1.3350–1.3450 zone, while support is seen around 1.3200–1.3250. A rate cut on Thursday may trigger short-term weakness in the pound, and anyone with GBP exposure may wish to hedge ahead of the announcement.

Key GBP Events This Week:

• Bank of England interest rate decision and Monetary Policy Report – Thursday, 8 May

EUR

The euro has traded steadily, with EUR/USD hovering around the 1.1300–1.1350 range. Last week’s flash Eurozone inflation figures showed headline CPI holding at 2.2%, while core inflation rose to 2.7%, slightly above expectations. Nonetheless, the European Central Bank is expected to continue cutting rates, with a further 25 basis point reduction anticipated in June following last month’s cut to 2.25%.

ECB commentary has remained broadly dovish, with policymakers signalling they are willing to act further if inflation slows. While the euro has shown some resilience, upward momentum is limited by the prospect of additional easing.

Technically, EUR/USD shows a slight bullish tilt, but the pair is struggling to break through resistance near 1.1350. Support is seen around 1.1275–1.1300. If the dollar weakens further or risk appetite improves, the euro may drift higher — but any significant gains could trigger fresh ECB concerns. Importers with euro exposure may want to consider taking advantage of current levels if rate divergence continues to cap the upside.

Key EUR Events This Week:

• Eurozone Retail Sales – Wednesday, 7 May

USD

The US dollar has stabilised after a choppy few sessions. The dollar index (DXY) is trading just below the 100 level, supported by firmer US data and safe-haven flows. Last week’s US jobs report showed 177,000 jobs added in April — a decent figure, though softer than in previous months. Meanwhile, ISM Services PMI beat expectations, rising to 51.6, and Q1 GDP unexpectedly contracted at an annualised rate of -0.3%.

The Federal Reserve is widely expected to hold interest rates steady at its policy meeting this Wednesday. Markets will closely analyse Chair Powell’s remarks for any shift in tone, particularly regarding inflation, employment, and trade developments.

Technically, the dollar remains within a broad consolidation pattern. Should the Fed maintain a neutral stance, the dollar could ease further. However, any hawkish rhetoric or renewed global uncertainty may lift demand for the greenback. Exporters invoicing in USD may wish to monitor this week’s decision closely, particularly as forward hedging costs remain relatively stable.

Key USD Events This Week:

• Federal Reserve interest rate decision – Wednesday, 7 May

• US Initial Jobless Claims – Thursday, 8 May

If you have upcoming currency requirements and would like expert guidance on navigating the markets, don’t hesitate to contact one of our consultants at 020 3876 5432.