The pair will likely continue falling as sellers target the next key support at 1.200.

Bearish View

• Sell the GBP/USD pair and set a take-profit at 1.2000.
• Add a stop-loss at 1.2230.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 1.2200 and a take-profit at 1.2300.
• Add a stop-loss at 1.2100.

The GBP/USD price remained under pressure during the Asian session as investors waited for the upcoming Bank of England (BoE) decision and US non-farm payrolls (NFP) data. It is trading at 1.2152, which is a few points below this week’s high of 1.2292.

BoE Interest Rate Decision

The Bank of England will conclude its two-day monetary policy meeting on Thursday. Economists, judging by recent words of Andrew Bailey, anticipate that the bank will hike interest rates by 0.5%. If the bank does this, it will be the biggest increase in more than 27 years.

The BoE has been one of the most hawkish central banks this year. It has hiked rates by 0.25% in all its meetings since December. Analyts believe that the rate hike will be balanced in nature since he bank is aiming to tighten without causing a recession. They also expect that rates will peak at about 3%.

The BoE decision comes a week after the IMF downgraded its outlook for the economy and inflation. As a result, the agency recommended that the BOE should take tough measures even if it hit growth, jobs and wages in the short-term.

UK’s economic data have been mixed. The labor market is strong while wage growth has continued well. On the other hand, consumer confidence has slipped to the lowest level in decades while inflation has surged to 9.4%, the highest point in over three decades.

Historically, currencies tend to rally after a central bank hikes rates. However, in this case, a retreat is also possible since the 50 basis points hike has already been priced in.

The next key data to watch will be the upcoming US jobs data scheduled for Friday. Analysts expect the data to show that the labor market continued slowing down.

GBP/USD Forecast

The four-hour chart shows that the GBP/USD pair has retreated sharply in the past few days. It dropped from a high of 1.2291 to a low of 1.2100. The current price is along the lower side of the ascending channel that is shown in green. It has also moved slightly below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved below the neutral point at 50.

Therefore, the pair will likely continue falling as sellers target the next key support at 1.200. A move above the resistance at 1.2225 will invalidate the bearish view.

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The recent selling operations witnessed by the GBP/USD currency pair stopped at the support level of 1.2100, bouncing back from the resistance level of 1.2293 and settled around the level of 1.2145 in the beginning of trading today, Thursday. Ahead of the most important event for the sterling pairs, which is the monetary policy decisions of the Bank of England, followed by the next most important event, which is the US jobs numbers on Friday. This will have an impact on the market expectations of the future of raising US interest rates. Barclays forex analysts say sterling is likely to head lower after Thursday’s BoE update, but Goldman Sachs is more positive regarding the outlook for the British currency, especially against the euro.

The Bank of England’s Monetary Policy Committee is expected to announce another rate hike before releasing its latest inflation and economic growth forecasts. Prior to that, the pound strengthened against both the euro and the US dollar during the latter part of July and early August and the major test of the currency comes with the size and shape of the announced rise.

It is noted that the biggest downside risk to the pound comes in the form of disappointing the British central bank against market expectations by raising another 25 basis points. This is because the market is now almost completely “priced” up 50 basis points and based on various comments from MPC members and the June statement that it is now ready to act “aggressively” in order to control inflationary impulses. In this regard, Marek Rachko, an analyst at Barclays, agrees. “A 50 basis point delivery could lead to an unexpected rally in sterling, while a 25 basis point move should see a bigger selloff,” Rachko says.

Barclays expects the British central bank to raise 50 basis points, in line with the consensus. However, “any rally should be short-lived or reverse quickly as we expect the Bank’s updated forecasts to show stagflationary stagflation impulses.” This will be a repeat of the May policy update, in which the bank raised interest rates but released a set of forecasts showing inflation will slip below the 2.0% target over the medium term while growth will drop to negative by the end of the year.

All in all, the Sterling fell following the May update, and trended lower against most of the major currencies over the following weeks. However, the GBP/EUR exchange rate has received better support since the Bank of England’s June update as it said it was prepared to act more “aggressively” on inflation. Since then, it has risen again above 1.19 and the GBP/USD exchange rate has returned to 1.22 this week.

Barclays expects just one additional 25 basis points in September, with the bank leaving the final interest rate at 2%.

This would prove to be a major failure in capturing current market rates and pose a significant downside risk to the pound’s exchange rate levels. Currency analysts at Goldman Sachs are more positive regarding the prospects for the Pound Sterling, especially against the Euro. They expect the MPC to raise 50 basis points in a break from the “most gradual and balanced approach” taken so far this year that favored delivery in 25 basis point increases.

However, the FX team acknowledges that a 50 basis point hike would represent an important change in the bank’s approach, “and the Fed’s return toward a more balanced strategy makes the BoE somewhat less anomalous.”

GBP/USD forecast today:

I have often recommended selling the pound sterling against the dollar (GBP/USD) from every bullish level. This is especially with the recent performance, as the markets have already priced in the Bank of England’s move today to raise interest rates. In return, the US dollar is taking advanced levels in front of everyone before the announcement of US jobs numbers, along with the return of investor appetite. Technically, the pound sterling dollar breaking the support level of 1.2100 will force the bears to move further downwards, and accordingly the most prominent downward move will be the support level 1.1965.

On the upside, and according to the performance on the daily chart, the GBP/USD pair needs to test the resistance levels 1.2330 and 1.2400, respectively, to stabilize the bullish outlook.

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Sterling started August trading with solid gains against both the euro and the dollar, but the risks fall later this week if the Bank of England holds back a 25 basis point rate hike on Thursday. The GBP/USD pair succeeded in rebounding higher with gains to the 1.2293 level, then returned amid selling operations to stabilize around the 1.2135 support level at the time of writing the analysis.

Financial market pricing shows that investors are in full position for a 50 basis point hike from the British central bank’s Monetary Policy Committee as it works to strengthen its response to rising UK inflation and inflation expectations among consumers and businesses.

But some prominent economists warn that a 50 basis point hike is not yet reached, and there are reasons to expect the central bank to maintain its preference for moving in 25 basis point increments, indicating downside risks for the pound. “YouGov’s measure of household expectations for 5-to-10-year inflation fell again in July, to 3.8%, from 4.0% in June,” says Samuel Tombs, chief UK economist at Pantheon Macroeconomics. Next year’s forecast also fell to 6.0%, from 6.1%. And the balance of data developments since then the MPC meeting in June suggests a probability increase of 25 basis points over 50 basis points.”

The analyst is always one of the most accurate economic forecasters in the UK according to Bloomberg and Reuters quarterly surveys.

The same survey cited by Tombs showed that 12-month inflation expectations fell to 6.0% from 6.1%. The Bank of England is particularly sensitive to inflation expectations as it can be affected by changes in interest rates. And while inflation expectations as measured by Citi and YouGov appear to have peaked, they are still well above the Bank of England’s 2.0% target, meaning most economists do not expect the data to affect the bank’s approach.

That alone will keep the odds up 50 basis points.

With the market investing heavily in the 50bp bet, sterling could be at risk of pulling back if the bank disappoints against this forecast on Thursday. More risks come in the form of a 50 basis point rise, but the bank is signaling a pessimistic outlook, lowering medium-term growth and inflation expectations, signaling a slowdown in the rate-raising cycle. This is exactly what the Reserve Bank of Australia did on Tuesday, sending the Australian dollar down sharply following the decision.

Adam Cole, chief currency strategist at RBC this week sold the GBP/CHF this week as he expects the Swiss Franc to outperform and the Bank of England not to support. The exchange rate of the British pound to the euro rose 2.5% during the month of July, supported in part by expectations that the Bank of England will be more active. The pair is back above 1.1950 at the time of writing with bank accounts offering rates at around 1.1710 for Euro payments and forex specialists providing rates around 1.1910.

For his part, says Viraj Patel, analyst at Vanda Research, the reasons for the bank’s commitment to a 25 basis point hike this week outweigh any need to increase the tempo with a 50 basis point increase. Currency analysts at Citi have a negative view of the British economy and the British Pound as the BoE event approaches this week. Citi highlights the risks of raising key interest rates into an economic slowdown on the back of multi-decade inflation.

Analysts say a larger fiscal support package from the new prime minister will ease a hard landing for the British economy, but this is at a time when borrowing costs are rising.

Technical forecast for the GBP/USD pair:

I still see that GBP/USD gains will be subject to selling at any time as the strength of the US dollar continues to expand. With a stronger future of monetary policy tightening by the Federal Reserve, the US dollar is a safe haven currency and global geopolitical tensions are on the rise at present. Bears moving towards the 1.2100 and 1.2020 support levels will end the bullish expectations and start the bears moving strongly to the downside.

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The pair will likely resume the bearish trend and retest this week’s low at 1.1938. 

Bearish View

• Sell the GBP/USD pair and set a take-profit at 1.1938.
• Add a stop-loss at 1.2250.
• Timeline: 1 day.

Bullish View

• Set a buy-stop at 1.2240 and a take-profit at 1.2300.
• Add a stop-loss at 1.2125

The GBP/USD pair drifted upwards after the hawkish Fed decision. Focus now shifts to today’s meeting by the Bank of England (BOE). It is trading at 1.2163, which is slightly above the lowest level this week.

BOE Decision Up Next

The Fed delivered a hawkish interest rate decision on Wednesday. After concluding the two-day meeting, the bank decided to hike rates by 0.75%, the highest increase since 1994. And in a press conference, Jerome Powell warned that the bank could hike rates by another 0.75% in its upcoming meeting.

The current pace of rate hikes provide more clarity about what Powell warned in May. In a speech, he warned that the current policy would lead to pain in the market. Since then, stocks, cryptocurrencies, and bonds have all slumped.

Still, amid the hawkish talk, there are concerns that the bank could be moving too fast. A notable fact is that Esther George, one of the most hawkish FOMC members, did not vote for a 75 basis point hike. Instead, she supported a 0.50% increase.

The next key catalyst for the GBP/USD pair will be the interest rate decision by the BOE. Analysts expect that the BOE will also hike interest rates by 0.25% for the fifth consecutive time. The bank is tightening its policy in a bid to fight the soaring inflation.

Still, the biggest concern is that data points to more weakness of the UK economy. The economy contracted for the second straight month in April. Key leading indicators like manufacturing and industrial production also declined.

Further, data published on Tuesday showed that the country’s unemployment rate rose in April. Therefore, more tightening could have an impact on the economy. Besides, the UK is expected to have the second-worst recovery in the G20 after Russia.

GBP/USD Forecast

The GBP/USD pair pulled back after the hawkish Fed decision. It rose and retested the important resistance level at 1.2163, which was the lower side of the inverted cup and handle pattern. In price action analysis, a break and retest is usually a sign of a continuation.

The pair is still below the 25-day and 50-day moving averages while the Relative Strength Index has moved slightly above the oversold level.

The pair will likely resume the bearish trend and retest this week’s low at 1.1938. A move above the 25-day MA will invalidate the bearish view.

The British pound may be on the way to recover against the US dollar if the Federal Reserve eases market expectations. Indeed, after the announcement, the price of the GBP/USD currency pair recovered to the level of 1.2204, a rebound from the recent collapse, which moved on its impact towards the 1.1933 support level, its lowest for a few years and settles around the 1.2170 level at the time of writing the analysis. Investors are counting on the Bank of England’s announcement today to look for catalysts for the pound in the forex market.

The Fed raised interest rates by 75 basis points, but according to analysts at Western Union Business Solutions, expectations about the scale of the Fed’s post-June hikes are starting to look excessive. As money markets show almost certainty that 75 points of gains will be delivered, “it should be noted that given the current aggressive market pricing, there is a risk that the Fed will fail to deliver on its expected hawkishness.”

If the market revises expectations of how much further interest rates will rise, by lowering the expected final interest rate (essentially the peak rate expected in 2023), the dollar could give up some of its recent gains. Some analysts say this could allow GBP/USD to extend its so far tepid recovery from 28-month lows.

The call comes on the heels of the pound to the dollar dropping below 1.20 to test a low of 1.1934 on Tuesday.

Overall, the GBP/USD exchange rate is still stuck in a specific downtrend and any strong bounces may be short as the trend extends. According to some experts, “the pound sterling is licking its wounds after falling to its lowest level in 13 months against the euro and its lowest level in 28 months against the US dollar. There are still many headwinds, such as higher UK inflation, lower economic growth expectations compared to its major counterparts, slowing price expectations, and also a harsh injection of more political anxiety.”

FX analysts point to a number of headwinds facing sterling, including ongoing tensions between the European Union and the United Kingdom over the Northern Ireland protocol and the unveiling of a new Scottish independence scheme by Nicola Sturgeon.

The biggest risk event for the British currency in the near term comes in the form of the Bank of England’s meeting on Thursday as it considers the next move on interest rates. Markets are currently expecting a 25bp hike but see a high potential for a material 50bp increase in light of the aggressive stance of the Fed and the UK’s ongoing battle against 9.0% inflation in April.

While a more decisive 50 basis point rally could help investor sentiment toward the British pound, it is likely to remain disappointing. According to some currency analysts, “The last time the GBP/USD fell below $1.20, the currency pair slipped all the way to $1.14 (albeit for a short time). All eyes are on the weekly close to provide the next trend signal, but given how much the GBP has fallen recently, selling cannot rule out a term recovery. The Fed and Bank of England meetings will play a critical role in determining the course of the sterling-dollar.”

According to the technical analysis of the pair: The reaction from the Bank of England’s announcement today, along with the results of the US economic data and the path of global stock markets, will have a strong and direct reaction to the performance of the GBP/USD pair. The strongest bears’ control, and according to the performance on the daily chart below, stability below the support 1.2155 will support the stronger bearish move below the psychological support 1.2000, and have completed the path of the collapse.

On the upside, it will be important to break the 1.2330 and 1.2500 resistance levels for the first exit from the current downtrend.

The pair will likely continue falling as bears target the key support at 1.2200. 

Bearish View

• Sell the GBP/USD pair and set a take-profit at 1.2200.
• Add a stop-loss at 1.2400.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 1.2325 and a take-profit at 1.2450.
• Add a stop-loss at 1.2300.

The GBP/USD pair declined sharply as odds of a more aggressive Federal Reserve continued. The pair crashed to a low of 1.2263, which was the lowest point since May 16th. It has fallen by over 2.8% below its highest point last week.

Fed and BOE Decisions Ahead

The GBP/USD pair declined after the strong US inflation numbers pushed investors to price in a more hawkish Federal Reserve.

According to the Bureau of Labor Statistics (BLS), the country’s inflation surged to 8.6% in May, the highest level since December 1981. The figure was better than the median estimate of 8.1%. At the same time, core inflation rose on a year-on-year basis but dropped for the fourth straight month on a MoM basis.

This will be a big week for the GBP/USD pair as focus shifts to important economic data from the US and the UK and the FOMC and BOE decisions.

On Monday morning, the Office of National Statistics (ONS) will publish the latest GDP numbers. Analysts believe that the country’s economy remained under pressure in April as consumer inflation continued surging.

The ONS will also publish the latest manufacturing, industrial, and construction output numbers. On Tuesday, the agency will release the latest UK jobs numbers. Analysts believe that the country’s unemployment rate declined to 3.7% to 3.6% in April.

The most important events will be the latest Fed and BOE decisions that are scheduled for Wednesday and Thursday, respectively. Analysts believe that the Fed will hike interest rates by 0.50% in its bid to fight inflation. It will also continue with its quantitative tightening (QT) policy.

The BOE is also expected to hike interest rates for the fifth consecutive meeting. The 0.25% hike will push the baseline interest rate to 1.25%.

GBP/USD Forecast

The four-hour chart shows that the GBP/USD pair continued its bearish trend after the strong US inflation data. It fell to a low of 1.2263, which was the lowest point since May 16th. As it dropped, it moved below the lower side of the descending channel shown in black. The pair also retreated below the 23.6% Fibonacci retracement level.

Therefore, the pair will likely continue falling as bears target the key support at 1.2200. This price is about 1.02% below the current level.

The sharp pessimistic view on the part of the Bank of England, the fears of the impact of the Russian gas cut on Britain, and an expected path for a strong tightening of the US Federal Reserve’s policy, increased the selling of the GBP/USD currency pair to the 1.2155 support level. This is the lowest in two years and closed last week’s exciting trading stable around the level of 1.2258, amid strong control of the bears continuing.

The Pound benefited from the Euro sell-off and regained its recent losses caused by the reduction in interest rate hike expectations from the Bank of England. The Bank of England rate hike expectations have been dampened following the May monetary policy update as it raised near-term inflation expectations but lowered growth and long-term inflation expectations. We reported at the time that the BoE could be the first major central bank to explain the difficult reality facing advanced economies where growth is low, and inflation is rising and that what happened to the British pound could happen to the future of other currencies very soon.

Commenting on the factors influencing the currency pair, says Ulrich Lochtmann, FX and Commodity Research Analyst at Commerzbank, “The Bank of England recently forecast a prolonged period of stagflation in Britain. So many thought that British central bankers were pessimistic as a result. I think the recent price action shows that the BoE’s view will soon become the view of the majority among market participants, and not just in relation to the UK! .

Essentially, investors can also recognize that the UK is not necessarily in a materially worse position than the Eurozone in terms of inflation and growth risks. Indeed, while the Bank of England seems certain to offer more interest rate hikes in the market, the ECB sees an opportunity to normalize rates. The UK’s gas dynamics also appear to be in a stronger position than the Eurozone due to the UK’s ability to process LNG off ships and turn it into gas, before sending it via a pipeline to Europe.

We note reports that UK gas prices fell the next day earlier in the week amid a glut of gas from LNG sources waiting to be exported to Europe.

“Natural gas prices have jumped as a result, and while prices have jumped in the UK as well, prices have been lower in the UK lately,” says MUFG Halpenny. Since the beginning of April, prices in Europe have fallen by 10% but during the same period, prices in the UK have fallen by 40%.”

The EUR/USD parity could drive the GBP up even more. Analysts warn that the euro could weaken further if Russia puts more pressure on European gas supplies, an outcome increasingly likely given the abject failure of Russian forces to make progress in eastern Ukraine. Rabobank tells clients that they now expect a strong chance of a recession in the Eurozone at the end of this year.

According to the technical analysis of the pair: The general trend of the GBP/USD currency pair is still bearish, and there will be no change in the trend without a change in tone and the Bank of England’s view towards some optimism. Both the Federal Reserve and the Bank of England are in one path towards more rate hikes during the year 2022. On the daily chart, the pair’s recent losses have moved the technical indicators towards oversold levels. With continued weakness factors, forex investors may not find an opportunity to think of buying now and breaking the resistance 1.2850 is important to break the current sharp bearish channel.

The sterling-dollar pair may test the psychological support 1.2000 as soon as the 1.2120 support is breached. Today’s sterling will be affected by the reaction from hearing the Bank of England report.

The pair will likely keep falling as investors target last month’s low of 1.2410. It will then bounce back after the BOE decision.

Bearish View

• Sell the GBP/USD pair and set a sell-stop at 1.2410.
• Add a stop-loss at 1.2700.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 1.2580 and a take-profit at 1.2700.
• Add a stop-loss at 1.2500.

The GBP/USD pair retreated slightly on Tuesday morning as investors refocused on the upcoming interest rate decisions by the Federal Reserve and the Bank of England (BOE). The pair dropped to a low of 1.2500, which is slightly below last Friday’s high of 1.2613.

Monetary Policy Decisions

The key drivers for the GBP/USD price will be the upcoming interest rate decisions by the Fed and the BOE. The Fed will start its difficult meeting on Tuesday and then deliver the decision on Wednesday.

Based by the recent trends in inflation and statements by Fed officials, analysts believe that the bank will accelerate its tightening pace. This tightening will include a 0.50% rate hike and possibly a $75 billion quantitative tightening policy.

Still, the bank is in a tough spot considering that economic data is painting a different picture about the economy. For one, its modest 0.25% rate hike in March has already pushed mortgage rates to the highest level in years. As a result, the housing market could see some weakness, which will weigh on the economy.

While inflation remains at elevated levels, there are signs that consumer prices are easing slightly. Further, data published last week revealed that the American economy declined in the first quarter. Pending home sales also dropped for the fifth straight month. And on Monday, data by both Markit and IHS revealed that the manufacturing sector was going struggling.

Meanwhile, the BOE will start its meeting on Wednesday and publish its decision on Thursday. Economists expect that the bank will deliver another 25 basis point hike and push them to 1.0%. If they are correct, it will be the fourth hike since December last year.

Therefore, while there will be some important data from the US and UK today, their impact on the GBP/USD pair will be relatively mild.

GBP/USD Forecast

The GBP/USD had a difficult performance in April as the strength of the US dollar continued. The pair attempted to recover on Friday but it found a strong resistance at 1.2615. It has now pulled back and moved slightly below the 25-day and 50-day exponential moving averages (EMA). The Stochastic Oscillator moved from the overbought level.

Therefore, the pair will likely keep falling as investors target last month’s low of 1.2410. It will then bounce back after the BOE decision.