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The pair will likely continue falling as sellers target the next key support at 1.1650.
Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.1650.
- Add a stop-loss at 1.1850.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.1800 and a take-profit at 1.1900.
- Add a stop-loss at 1.1700.
The GBP/USD exchange rate is hovering near its lowest level since March 2020 as the US dollar makes a strong comeback. The pair dropped to a low of 1.1745 on Monday, which was about 17.80% below the highest point this year.
US dollar makes a comeback
The GBP/USD price has come under intense pressure in the past few weeks because of the substantially strong US dollar. The dollar index rose to $109, which is a few points below its highest point in more than 20 years.
This rally accelerated after the latest hawkish statement by Jerome Powell and other Fed officials like Neel Kashkari, Charles Evans, and Mary Daly insisted that it was too early to declare victory on inflation.
Most Fed officials who talked at the Jackson Hole Symposium noted that the bank will continue hiking interest rates in the coming months. Analysts expect that the bank will hike by 0.50% after rising by 150 basis points in the past two meetings. Also, they also believe that rates will stay at high levels for some time.
The GBP/USD pair also remained under pressure as concerns about the UK economy continued. Last week, the country’s energy regulator decided to increase the energy price cap by 80% to 3,549 pounds as natural gas prices soared. Sadly, analysts expect that prices will continue rising in the coming months.
In a statement last week, analysts at Citigroup warned that the country’s inflation will rise to 18.3% in January. The Bank of England sees inflation rising to over 13% while Goldman Sachs expects that prices will rise to 15%.
Therefore, there is a likelihood that the UK will go through a recession soon, which will put the Bank of England in the difficult position of hiking during a recession.
GBP/USD forecast
The GBP/USD price continued its bearish trend as the US dollar continued gaining. It was trading at 1.1745 on Monday morning, which was slightly below the important support at 1.1769. This price was the lowest level on July 14. It has moved below the 25-day and 50-day moving averages.
The pair has also formed an inverted cup and handle pattern. In price action analysis, this pattern is usually a bearish sign. Therefore, the pair will likely continue falling as sellers target the next key support at 1.1650.
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