On Thursday, the Bank of England delivered a widely expected 25 basis point interest rate cut. Despite the dovish decision, the pound reacted positively to the outcome of the May meeting. The GBP/USD pair even updated its intraday high, reaching 1.3355. Although the pair remained within the established price range (1.3250–1.3380), the British currency's reaction is telling.

The May meeting results can be considered hawkish despite the rate cut. This was a classic case of a "hawkish cut": the central bank did not announce further steps toward monetary easing and even revised its economic growth forecast upward.

Markets had no doubt the BoE would take another step toward looser monetary conditions, so the formal outcome of the meeting was largely priced in. The details of the meeting strengthened the pound.

For instance, seven out of nine MPC members voted for the rate cut, while two—Chief Economist Huw Pill and Catherine Mann—voted to keep the rate at 4.5%. This was a surprise, as the market had expected a unanimous 9–0 vote in favor of a cut. While one or two votes wouldn't change the result, the softening of the dovish camp boosted sterling.

In addition, the BoE raised its 2025 GDP growth forecast from 0.75% (February projection) to 1.0%.

Governor Andrew Bailey noted that the negative impact of tariffs on the UK economy "is likely to be less significant than in other countries." He also welcomed Donald Trump's announcement of a U.S.-UK trade deal, saying it would "help reduce uncertainty."

Regarding future policy moves, Bailey emphasized that interest rates are not on "autopilot" and confirmed a cautious approach. This aligns with market expectations for two more cuts before year-end.

Overall, the May BoE meeting played more in favor of the pound than against it. However, GBP/USD buyers only managed to post a new intraday high while staying within the broader 1.3250–1.3380 range.

Why?

There are a few reasons. First, the BoE implemented the base-case scenario, and the hawkish tilt was relatively mild. The policy statement used vague language, such as saying that the policy should remain restrictive "long enough until the risks of a sustainable return of inflation to the 2% target have dissipated."

Second, some pressure on the pound came from the early details of the U.S.-UK trade agreement. Although still unconfirmed, rumors suggest the 10% tariff on UK goods will remain in place, despite Trump's claims of a "comprehensive" deal.

Also, the UK continues to face 25% tariffs on steel, aluminum, and cars imposed by Trump. While some relief may be forthcoming, nothing has been officially announced.

Given this contradictory fundamental backdrop, buying and selling GBP/USD appear equally risky. Traders have priced in the BoE decision but not the new trade deal with Washington. It remains unclear whether the new terms will benefit the UK and, if so, to what extent. There's a stark contrast between pre-Trump terms and the current situation, where tariffs of 10% and 25% are in effect.

The complete details of the trade agreement are expected to cause volatility in the GBP/USD currency pair. It remains uncertain whether this will positively or negatively impact the pound. For now, it may be best to avoid entering the market until the situation stabilizes.