British Pound Outlook: GBP/USD Eyes BoE Vote and Delayed Fed Reaction

• BoE hold expected, vote split may jolt GBP/USD
• GBP/USD Uptrend broken, downside risk rising
• Bullish momentum fading, RSI down, MACD unconfirmed
• Fed USD tail risk could generate volatility 

GBP/USD Outlook Summary

With little chance of the bank rate moving and no fresh forecasts for traders to digest, Thursday’s Bank of England (BoE) monetary policy meeting may not provide the type of volatility we’ve become accustomed to in the past, unless we see another shock vote split. In reality, a delayed reaction to the Federal Reserve’s policy decision on Wednesday may be the largest source of volatility for GBP/USD, especially as tail risks that could have sparked another wave of dollar selling failed to eventuate.

Near-Term Rates Path in Focus

While not the tightest relationship, rate differentials have been influential on GBP/USD over the past month, especially at the front of the U.S. and U.K. curves. It’s been the U.S. that has had the strongest influence, with market pricing for Fed rate cuts and two-year yield differentials maintaining a relatively strong correlation. 

Therefore, if you’re looking for clues on what to watch from a fundamental perspective when trading GBP/USD, information that could influence the near-term rate outlook appears key.

BoE Hold with a Side of Slower QT

There’s been plenty of fresh information on both sides of the Atlantic that could influence the path for policy rates, including inflation and labour market data in the U.K. However, the mixed reads have failed to budge what’s been a solid view that the bank rate is likely to remain unchanged at 4% over the remainder of 2025. Swaps markets have only 7 basis points priced by the BoE’s December meeting, with a full 25-basis-point cut not baked in until April 2026.

Source: Bloomberg

With no fresh forecasts from the bank until November, unless the BoE drops a huge surprise by adjusting the bank rate at Thursday’s meeting, it will be left up to the monetary policy statement, including the vote, along with Governor Andrew Bailey’s post-meeting press conference to generate volatility.

On the vote, it must be remembered the MPC split 5-4 last meeting in favour of reducing the bank rate, requiring a second vote to seal the deal. If we see a decent proportion of the committee vote for another reduction at this meeting (two votes are expected), it may lead to a dovish repricing at the front of the gilt curve, weighing on GBP/USD. If unanimous for a hold, the opposite will likely apply.

On the gilt market, with longer tenors flapping around like a windsock on a gusty day at Heathrow given the U.K.’s perilous fiscal situation, it’s widely expected the BoE will slow the pace of its quantitative tightening program. If it doesn’t, it may actually weigh on GBP/USD despite being a hawkish signal, likely pressuring the long end of the gilt curve.

 

 

Sting in the Tail from the Fed?

While the BoE will be in focus, I’m interested to see whether we see an extension of the moves seen following the Federal Reserve meeting on Wednesday. Considering the median Fed policymaker continues to favour a less aggressive easing cycle than markets have priced in, it was surprising there wasn’t more of a reaction in the USD and Treasury market.

Outside of Stephen Miran’s (likely) wild forecast for the funds rate to end the year 150bp lower, which would require a significant left-tail risk for the economy to actually play out, some of the most acute concerns surrounding Fed independence failed to materialise. Waller and Bowman—who were appointed by Donald Trump during his first term in office—both voted for a 25-basis-point cut, failing to dissent like the July meeting. Nor was there a meaningful shift lower in the median Fed funds profile, with just one additional cut added in 2025 and none in 2026. The nominal neutral rate remained at 3%.

Unless you believe Trump will make an imminent announcement about a replacement for Jerome Powell who will be able to convince the remaining FOMC to slash rates far beyond what’s been indicated, the onus is now on the labour market data to justify what is still 125 basis points of cuts markets have priced by the end of 2026. As we saw in 2024, summer weakness in payrolls did not translate to a sharply higher unemployment rate this year.

It makes me wonder whether there may be a string in the tail from the Fed meeting, resulting in a further rebound in the U.S. dollar and unwind in the Treasury market. It wouldn’t be the first time we see a delayed reaction to a Fed meeting.

GBP/USD Reversal Risk

Source: TradingView

Recent price action in GBP/USD points to the risk of an extension of Wednesday’s reversal, with a shooting star followed by a break of minor uptrend support dating back to the lows struck on September 3. Combined, it suggests directional risks may be skewing lower, putting support at 1.3589 on the radar near-term. A break of that level may deliver a deeper flush towards the 50DMA or support at 1.3450 and 1.3370. Should Cable manage to bounce, 1.3725 and the January 2022 high of 1.3749 are the immediate levels of focus.

Mirroring recent price action, momentum indicators show flagging bullish strength, with RSI (14) breaking its uptrend. MACD is yet to confirm, providing an overall cautious message.

Following the BoE decision at midday London time, the other release to keep an eye on Thursday is U.S. initial jobless claims data 90 minutes later. Every labour market indicator is now important, and this is the closest version we have as a real-time indicator.