The Bank of England is scheduled to hold its monetary policy meeting on Thursday, March 21. It is expected that the rate will be kept at the level of 5.25%, with 7 out of 9 committee members seen to vote to maintain the rate. Notably, the known hawk Mann will vote for a rate hike, while the dove Dhingra will vote for a rate cut. Any deviation from this scenario could disrupt the peace and fuel more volatility.

The BoE needs to avoid the danger of starting the tightening cycle too early, as inflation remains far from clear. January data showed a decrease in prices beyond expectations, so the February inflation data scheduled for release on Wednesday could trigger a strong market reaction, although it is unlikely to affect the BoE's position. The sharp decline in energy prices has allowed the commodity component of inflation to return to the 2% target, wage growth rates are also slowing down, but there is hardly any positive momentum in the service sector. Therefore, the BoE will likely confirm its intention to rely on data and continue its pause.

It is quite possible that the BoE may suggest a possible rate cut at the May meeting, at which updated forecasts will also be presented, with the actual cut taking place in June. Overall, markets currently anticipate a 63 bps cut this year, which roughly aligns with the Federal Reserve's plans, so the rate factor cannot be a driver for strong movements in GBP/USD yet.

The Chancellor's budget, which can clarify inflation forecasts, turned out to be balanced - a number of proposed measures to soften the impact are mainly aimed at stimulating supply rather than demand, and are unlikely to have an inflationary effect.

The latest labor market report turned out to be positive overall - average earnings (excluding bonuses) grew by 6.1%, down from 6.2% a month ago, and including bonuses, from 5.8% to 5.6%. The dynamics are positive, and both indicators turned out to be better than expected, which adds confidence.

The net long GBP position increased by 1 billion to 5.6 billion during the reporting week, the bullish bias remains intact, the price is above the long-term average and is also headed upwards.

After updating the high, the GBP/USD pair retraced slightly downwards, and we consider this a corrective move. The nearest support is at 1.2707, then 1.2675/85, a deeper decline is unlikely and can only occur in the event of an unpleasant surprise from the BoE on Thursday. The closest target is a retest of 1.2827, then 1.2892, the next target is the trend line at 1.3045/55, a break above will increase the chances of a bullish reversal.