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.
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