GBPUSD analysis – Is the Bank of England approaching peak rates?

The Bank of England (BoE) is due to release its interest rate decision today, with markets expecting a 12th consecutive hike to take interest rates to 4.50%. There has been increasing speculation that the BoE is reaching its terminal rates and could follow the lead of the US FOMC and the ECB in signaling a slowdown or pause on further rate hikes following the decision today. However, inflation in the UK is yet to signal a sustained slowdown, with the recent March Consumer Price Index (CPI) still above 10%.

The UK economy has been performing better than expected this year, which has seen the GBPUSD rise steadily to trade just below the key resistance area of 1.27, which was last tested in May 2022. Any indication that the BoE could potentially pause on monetary tightening or dissent in the voting (expected 7-0-2) on the rate hike could see the GBPUSD come under renewed downward pressure.

A bearish divergence (prices rallying to new highs while the oscillator retraces from a peak) has formed at the resistance level and could signal the potential for a reversal to the downside. This reversal could be confirmed if the GBPUSD continues to trade lower past the 1.2550 price level, which coincides with the 38.2% Fibonacci retracement level from the short term. The downside on the GBPUSD could be significant, with the next key support level at 1.2350 which aligns with the 38.2% Fibonacci retracement level from the longer term.