Our focus falls on the pound ahead of the Bank of England (BoE) rate decision this afternoon.

The BoE is widely expected to raise interest rates for the 12th consecutive meeting thanks to stubborn double-digit inflation. While a 25-basis point hike is pretty much a certainty, the key question is whether the BoE will signal more hikes like the European Central Bank (ECB) or hint at a pause like the Federal Reserve (Fed).

A spicy combination of hot inflation and strong wage growth may force the central bank to keep the doors open for more rate hikes down the road. Nevertheless, the minutes, quarterly Monetary Policy Report, and BoE Governor Andrew Bailey’s press conference may offer fresh clues on the BoE’s next move.

In the previous trading session, the GBPUSD jumped to a fresh 2023 high around 1.2680 before giving back some gains. If the BoE sends a hawkish message and hints of more hikes in the future, this could boost the currency pair. Alternatively, a dovish-sounding BoE that hints at pausing rates could drag prices lower. Whatever the outcome, it will certainly have a strong impact on the GBPUSD.

Taking a deep dive into the technicals… 

The GBPUSD is in an established uptrend on the daily timeframe with multiple impulse waves already showing clearly on the chart. On 9 May at 1.26799 a higher top was recorded but the bears also sent a clear signal that they want another decent innings here soon.

Two bearish pin bars forming in the last few days was a clear warning for alert technical traders that a shift in momentum might be on the books. This is being confirmed currently with a strong bearish candle and a possible correction wave in progress.

If the bears continue to pull the price lower, they might reach a weekly support level and then two scenarios are possible from there.

One is that the bulls get back into the game and start driving prices upward to start a possible new impulse wave.

Two is that the bears keep the upper hand and although some lower time frame ranging can be expected as the weekly support level exerts it’s influence on the price, the correction wave may continue or even, after a potential short bullish stint, a lower top and then lower bottom might form on the D1 chart to give the bears full control of the market.

As long as the bulls keep on making higher top and bottoms, the outlook for GBPUSD on the D1 time frame will remain bullish as confirmed by the price currently being above the 15 and 34 Simple Moving Averages and the Momentum oscillator hovering above the 100-base line in bullish terrain.