Despite expectations that the Bank of England is poised to lower interest rates to their lowest level in two years, the British pound is gaining ground against the U.S. dollar.

Economists anticipate that the UK central bank will cut its key rate by 25 basis points to 4%, maintaining its previous quarterly pace of easing. The decision will be announced at 12:00 London time, followed by a press conference led by Governor Andrew Bailey half an hour later.

This anticipated rate cut reflects the Bank of England's ongoing efforts to support an economy facing headwinds amid global economic challenges. Lowering the rate to 4% is intended to ease borrowing conditions for businesses and consumers, which should in turn stimulate investment and consumer spending. However, the move also carries risks. An overly accommodative monetary policy could lead to rising inflation and a weakening of the pound sterling.

Andrew Bailey's press conference will be a key event, where he will explain the rationale behind the rate cut decision and take questions from journalists. Traders will closely monitor his remarks for clues about the Bank's future policy path and the outlook for the UK economy.

It is clear that the Monetary Policy Committee is maintaining a cautious approach to policy loosening amid a fresh wave of inflation. Updated forecasts are expected to signal stronger short-term price pressures than those projected in May. However, concerns about the state of the economy are also growing after two consecutive contractions in the spring and a slowdown in hiring caused by April's payroll tax and minimum wage increases. Economists believe the MPC will retain its current guidance, encouraging traders to expect a more gradual rate-cutting cycle.

The decision is likely to expose divisions within the nine-member MPC. Economists expect a split in three directions: a majority favoring a 25-basis-point cut, two members pushing for a deeper 50-basis-point cut, and two others advocating for no change. This would mirror the division seen three months ago, during the last rate cut.

The MPC is expected to maintain guidance that points markets toward a more gradual and cautious path of rate reductions, with policy reassessed at each meeting. This could offer some support for the pound, which posted a strong advance against the U.S. dollar yesterday.

Nonetheless, traders will also pay close attention to any hints regarding the regulator's next steps. Markets are currently pricing in two additional rate cuts by the end of the year—including today's decision—bringing the key rate to 3.5% in 2026.

As a reminder, UK inflation reached a 17-month high of 3.6% in June, 0.2 percentage points above the Bank of England's forecast. The central bank is expected to revise its short-term forecast upward, projecting inflation around 4% this year.

While BoE Governor Andrew Bailey maintains that the current spike is likely temporary, others—including Chief Economist Huw Pill—have raised concerns about secondary effects on wages and prices. More attention may also be directed to the BoE's unemployment forecast, as the MPC grows increasingly worried about job losses.

GBP/USD Technical Outlook Pound buyers need to break through the nearest resistance at 1.3380. Only then can they aim for 1.3425, though breaching that level may prove difficult. The furthest upside target is the 1.3450 area. In the event of a decline, bears will attempt to regain control over 1.3330. If they succeed, a break below this range would significantly damage the bulls' positions and push GBP/USD toward the 1.3280 low, with potential for further losses toward 1.3250.

EUR/USD Technical Outlook Buyers now need to focus on reclaiming the 1.1690 level. Only then can they target a test of 1.1730. A move beyond that would open the way to 1.1760, though achieving this without support from major players may be difficult. The ultimate target remains the 1.1800 high. If the instrument declines, I expect significant buying interest to emerge only around 1.1655. If not, it may be prudent to wait for a retest of the 1.1610 low or to consider long positions from 1.1565.