GBP/USD has lost its traction ahead of the Bank of England's (BoE) policy announcements. A hawkish BoE hike could lift the pound to 1.2660, FXSTreet’s Eren Sengezer reports.

Vote split and Governor Bailey's comments to drive the pair's action

“The BoE is widely expected to hike its policy rate by 25 basis points. It wouldn't be a surprise if John Cunliffe, the dissenter in March, were to vote to keep the rates unchanged. If more members do the same, the GBP could come under heavy bearish pressure. On the other hand, in case some members vote for a bigger-than-25 bps rate hike, that would be bullish for GBP/USD and trigger a fresh leg higher in the pair.”

“If Governor Andrew Bailey suggests that they will wait and see how the economy evolves after four straight rate hikes before deciding on the next policy step, that could be seen as a dovish development and cause GBP/USD to continue to push lower.” 

“With a hawkish BoE hike, the pair could target 1.26 (psychological level, 50-period SMA) and 1.2660 (Fibonacci 38.2% retracement of the latest downtrend). A daily close above the latter could be seen as a bullish development and open the door for additional gains toward 1.2750 (Fibonacci 50% retracement).”

“On the downside, 1.25 (psychological level) aligns as the first support. A cautious policy tightening outlook could cause the pair to break below that level and fall toward 1.2420 (static level).”

See – BoE Preview: Forecasts from 11 major banks, another dovish hike on the cards