Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.3500.
- Add a stop-loss at 1.3720.
- Timeline: 1-2 days
Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.3720.
- Add a stop-loss at 1.3500.
The GBP/USD exchange rate held steady after the Federal Reserve delivered its first interest rate cut of the year and as traders waited for the upcoming Bank of England (BoE) decision. It rose to a multi-month high of 1.3728, up by 4.47% from its lowest level this month.
Federal Reserve and Bank of England Interest Rate Decisions
The GBP/USD pair rose after the Fed slashed interested rates by 0.25% as it continued to focus on the weakening labor market. It brought the benchmark interest rates to between 4.00% and 4.25% as most analysts were expecting.
Most importantly, officials left the door open for another interest rate cuts this year. The closely-watched dot plot pointed to a 50 basis point cut by the end of the year.
Officials noted that the job market had slowed and that the downside risk to employment had risen. This was in response to the recent report that showed that the economy created just 22,000 jobs in August as the unemployment rate rose to 4.3%.
The GBP/USD exchange rate also reacted to the latest UK inflation data by the Office of National Statistics (ONS). This report showed that inflation was a major challenge for the economy as the headline Consumer Price Index remained at 3.8% and the core inflation slowed to 3.6%
The next important GBP/USD news will come from the UK, where the Bank of England will deliver its interest rate decision. Economists expect the bank to leave interest rates unchanged at 4.0%, citing the stubbornly high inflation rate in the country.
Therefore, the divergence between the Fed and the Bank of England could lead to more demand for the higher-yielding sterling in the near term.
GBP/USD Technical Analysis
The GBP/USD exchange rate has been in a strong uptrend in the past few weeks, moving from a low of 1.3140 on August 1 to a high of 1.3728. It has moved slightly above the important level at 1.3600, the upper side of the inverse head-and-shoulders pattern.
The pair is hovering between the ultimate resistance and the weak, stop & reverse point of the Murrey Math Lines. It remains above the 50-day and 100-day Exponential Moving Averages.
Therefore, the most likely GBP/USD forecast is relatively bearish as the Fed interest rate cut was already priced in.. It will then bounce back, and possibly retest the year-to-date high of 1.3787.
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Crispus Nyaga is a financial analyst, coach, and trader with more than 8 years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx. Further, he has published widely in platforms like SeekingAlpha, Investing Cube, Capital.com, and Invezz. In his free time, he likes watching golf and spending time with his wife and child.
