• GBP/JPY falls swiftly to near 188.40 as two BoE MOC members favored large interest rate cuts.
• The BoE sees a temporary uptick in inflation before returning to the 2% path due to higher energy prices.
• BoJ Tamura sees interest rates to rise to at least 1% by the second half of the fiscal year beginning in April.

The GBP/JPY pair faces an intense sell-off and dives vertically to near 188.40 in Thursday’s North American session, the lowest level seen in two months. The cross plummets after the Bank of England’s (BoE) monetary policy meeting in which the central bank reduced its key borrowing rates by 25 basis points (bps) to 4.5%.

The BoE was already expected to cut interest rates but with an 8-1 vote split. However, the outcome of the policy meeting showed that all Monetary Policy Committee (MPC) members favored an interest rate cut decision. Above that, two members supported a larger-than-usual reduction of 50 bps.

Market participants have considered BoE members’ support for large interest rate cuts a dovish message for the monetary policy outlook. However, BoE Governor Andrew Bailey has guided a cautious and gradual rate cut approach amid expectations that the United Kingdom (UK) headline Consumer Price Index (CPI) could temporarily accelerate to 3.7% before resuming its downside journey towards the central bank’s target of 2%.

Andrew Bailey has refrained from committing to a preset rate-cut path. However, market participants have raised dovish expectations that the BoE will cut three times more this year. Before the BoE meeting, traders fully priced in two rate cuts for the entire year after Thursday’s monetary policy meeting.

Meanwhile, the Japanese Yen (JPY) performs strongly across the board amid growing expectations that the Bank of Japan (BoJ) will raise interest rates further this year. BoJ hawkish bets accelerate after board member Naoki Tamura must raise interest rates to at least 1% by the second half of the fiscal year beginning in April, Reuters reported. Tamura’s hawkish guidance was based on the assumption that there would be broad-based pay increases, which would lift price pressures.

• EUR/GBP refreshes weekly high near 0.8380 after the BoE reduced its interest rates by 25 bps to 4.5%, as expected.
• Surprisingly, BoE policymaker Catherine Mann supported a larger-than-usual interest rate reduction of 50 bps.
• The BoE sees a temporary uptick in price pressures due to higher energy prices.

The EUR/GBP pair surges and posts a fresh weekly high to near 0.8380 in Thursday’s North American session. The cross strengthens as investors have dumped the Pound Sterling (GBP) after the Bank of England’s (BoE) monetary policy decision in which the central bank reduced its key borrowing rates by 25 basis points (bps) to 4.5%.

Traders had already priced in a 25-bps interest rate decision but with an 8-1 vote split. However, all Monetary Policy Committee (MPC) members supported an interest rate cut and two out of them (Swati Dhingra and Catherine Mann) favored a larger reduction by 50 bps. Investors were shocked after seeing Catherine Mann’s support for a larger-than-usual rate cut as she has been an outspoken hawk.

Apart from an ultra-dovish tone from the MPC, downwardly revised Gross Domestic Product (GDP) forecasts have also weighed on the British currency. BoE’s monetary policy report shows that the central bank has projected a decline in the United Kingdom’s (UK) growth rate by 0.1% in the last quarter of 2024 against the 0.3% economic expansion projected in November. The central bank has also revised GDP growth for the current quarter lower to 0.1% from 0.4%.

It appears that the conversion of Catherine Mann’s restrictive stance to ultra-dovish is driven by a weak economic outlook.

Meanwhile, the BoE expects a temporary acceleration in the headline Consumer Price Index (CPI) to 3.7% before returning to the 2% path due to a rise in energy prices.

On the Euro (EUR) front, the outlook of the shared currency has weakened as ECB policymaker and Governor of Bank of Portugal Mario Centeno said in an interview with Reuters on Wednesday that interest rates could move below the neutral rate “sooner rather than later”. ECB Centeno’s dovish remarks were based on the assumption that the Eurozone economy is unable to hold inflation near the central bank’s target of 2%.

• GBP/USD falls 0.93%, hitting a session low of 1.2359 after BoE’s unexpected rate decision.
• BoE’s dovish stance intensifies with forecasts of significant easing by end of 2025, stirring market reactions.
• Contrast in Fed and BoE policies likely to favor USD strength.

The Pound Sterling fell during Thursday’s North American session, down 0.79% after the Bank of England (BoE) reduced the Bank Rate by 25 basis points. Therefore, the GBP/USD tumbled below 1.2400 and hit a daily low of 1.2359. At the time of writing, the pair trades at 1.2405.

GBP/USD nosedives below 1.2400 following a surprising 25 basis point cut by the Bank of England

As expected, the BoE lowered rates to 4.50%, though surprisingly. Two members voted for a “larger size” rate cut, with Catherine Mann, one of the hawkish members, being one of them. Following the UK’s Central Bank decision, investors rushed to price 65 basis points (bps) of easing towards the end of 2025.

Additionally, the BoE updated their forecasts. The British economy is expected to grow by 0.75% and inflation to rise from 2.5% to 3.7%. BoE’s Governor Andrew Bailey said he hopes to be able to cut rates further, yet they would take their decisions “meeting by meeting.” He added that although headline inflation edged higher, he sees “continued gradual easing of underlying inflationary pressures.”

Across the pond, US Initial Jobless Claims missed the mark for the week ending February 1. The number of Americans filing for unemployment benefits rose by 219K, up from 208K the previous week and exceeded forecasts of 213K.

Given the backdrop, further GBP/USD downside is seen. The Federal Reserve is expected to keep rates on hold while the BoE continues to ease policy. Therefore, the divergence amongst Central Banks might benefit the Greenback.

The UK economic docket will comprise BoE officials crossing the wires this week. In the US, nonfarm payroll figures for January and Fed speakers could dictate the direction of GBP/USD.

GBP/USD Price Forecast: Technical outlook

After the BoE’s decision, the GBP/USD hit a three-day low of 1.2359 before recovering some ground. Nevertheless, failure to clear the 50-day Simple Moving Average (SMA) of 1.2497 has opened the door for further downside. A daily close below 1.2400 would shift the trend downwards and pave the way for challenging the February 3 low of 1.2248.

On the other hand, if GBP/USD stays above 1.2400, buyers must clear the 50-day SMA to test the 1.2500 mark in the near term.

• EUR/USD drops on Thursday, slipping to 1.0355 after recent gains.
• After rising above the 20-day SMA earlier in the week, the pair faces renewed selling pressure and sellers might test its strength.
• A loss would push the pair towards 1.0300.

The EUR/USD pair pulled back on Thursday, declining by 0.45% to 1.0370 as bullish momentum faded. After climbing above the 20-day Simple Moving Average (SMA) at the start of the week, the pair now faces renewed bearish pressure, with sellers attempting to push it back toward this key support level. However, the overall outlook remains bearish with the pair well below the 100 and 200-day SMA which stand around 1.0600 and 1.0700.

Technical indicators suggest a weakening in bullish traction. The Relative Strength Index (RSI) has sharply declined to 49, moving into negative territory, signaling that upside momentum is losing steam. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram remains flat with green bars, indicating indecisiveness in market sentiment.

If selling pressure persists, EUR/USD could test the 20-day SMA, currently near 1.0360. A break below this level would open the door for further declines toward 1.0300. On the other hand, if buyers regain control, resistance lies at 1.0400, followed by the key 1.0450 zone. For now, the short-term outlook hinges on whether the pair can hold above its 20-day SMA.

EUR/USD daily chart

• The Canadian Dollar churned on Thursday, holding flat against the Greenback.
• PMI figures from Canada contracted sharply in January, limiting Loonie gains.
• Key US NFP and Canadian employment figures are due on Friday.

The Canadian Dollar (CAD) spun in a tight circle on Thursday, churning chart paper near 1.4300 against the US Dollar (USD) as markets gear up for another Nonfarm Payrolls (NFP) Friday. Markets are treading water near familiar levels as investors shrug off the early week’s trade war fears and resume focusing on hopes for future Federal Reserve (Fed) rate cuts.

Canadian Purchasing Managers Index (PMI) figures for January sharply missed the mark on Thursday. Canadian Net Change in Employment and Average Hourly Wages numbers are due on Friday but will be overshadowed by the much larger US NFP jobs data package.

Daily digest market movers: Canadian Dollar flattens ahead of NFP

• The Canadian Dollar has fought back from 21-year lows this week, but remains trapped in familiar consolidation territory against the Greenback.
• Canada’s Ivey PMI for January contracted sharply on a seasonally adjusted basis, falling to a four-year low of 47.1.
• US tariffs on Mexico and Canada have been kicked down the road by another 30 days, and market tensions are loosening for the time being.
• US tariffs on China are still in place, as are reciprocal tariffs on the US from China, but these tit-for-tat import fees are largely symbolic and markets are expected to circumvent them quickly.
• Canada is expected to add far fewer jobs in January compared to December, down to 25K from 90.9K, and the Canadian Unemployment rate is forecast to tick up to 6.8% from 6.7%.
• Friday’s US NFP is likewise expected to shift lower to 170K net new jobs additions from 256K, but bumper labor prints from earlier in the week could signal an upside surprise.

Canadian Dollar price forecast

With key data due to wrap up the trading week, the Canadian Dollar is stuck back in familiar consolidation territory against the US Dollar. USD/CAD remains hung up on the 1.4300 handle, at the bottom end of a choppy sideways grind that has kept the pair traveling horizontally since mid-December.

The Loonie tumbled early this week to a 21-year low against the Greenback, sending USD/CAD to a two-decade high near 1.4800, but the move was unsustainable and the pair is now back to its middling ways. Price action is drawing into the midrange at the 50-day Exponential Moving Average (EMA), and it will take a material shift in markets to punch in new technical levels.

USD/CAD daily chart

• The US Dollar Index holds below 108.00 as mixed economic indicators raise concerns ahead of Friday’s employment report.
• ADP reports a stronger-than-expected increase in private sector employment for January, while Initial Jobless Claims also rise.
• Investors anticipate the upcoming Nonfarm Payrolls data to gauge the Federal Reserve’s future monetary policy decisions.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against a basket of currencies, struggles to hold its recent gains, trading below 108.00 on Thursday. Mixed United States (US) economic data fuels uncertainty ahead of the January employment report due on Friday. Investors remain cautious as labor market signals provide conflicting outlooks, with ADP data showing strength while jobless claims rise.

Daily digest market movers: US Dollar index remains soft after mixed data

• ADP reports a stronger-than-expected private sector job increase of 183,000 in January, exceeding the 150,000 consensus.
• On Thursday, Initial jobless claims rise to 219,000, surpassing expectations of 213,000 and up from last week’s 208,000, signaling potential labor market softening.
• Continuing jobless claims increase to 1.886 million, above the forecast of 1.87 million and last week’s 1.858 million.
• Investors now focus on Friday’s Nonfarm Payrolls report, projected to show 170,000 new jobs in January, down from December’s 256,000.
• The CME FedWatch tool shows a nearly 90% probability of the Fed keeping rates steady in March, reinforcing expectations of a prolonged hold. NFP data will dictate the pace of the markets bets.

DXY technical outlook: Indicators show growing bearish momentum

The US Dollar Index struggles to maintain recent gains, slipping below the 20-day Simple Moving Average (SMA) at 108.50. The Relative Strength Index (RSI) remains below 50, signaling increasing bearish traction. The DXY now looks poised to test the psychological support level at 107.00, with downside risks growing as mixed economic data clouds the Fed’s hawkish policy outlook.