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Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2300.
- Add a stop-loss at 1.2435.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2395 and take a profit at 1.2465.
- Add a stop-loss at 1.2300.
The GBP/USD exchange rate retreated in the overnight session as the market reflected on the hawkish pause by the Federal Reserve. The pair slipped to 1.2330 as traders refocused on the upcoming Bank of England (BoE) rate decision.
Bank of England's decision ahead
The GBP/USD pair has been in a strong bearish trend in the past few months. This decline continued after the UK published mixed inflation data and the Fed made a hawkish pause as expected.
In a report, the Office of National Statistics (ONS) showed that the headline CPI rose from -0.4% in July to 0.3% in August. It dropped from 6.8% to 6.7% on a year-on-year basis. Another report revealed that core inflation fell from 0.3% to 0.1% and from 6.9% to 6.2% on a MoM and YoY basis, respectively.
These numbers mean that the country’s inflation remained above the Bank of England (BoE) target of 2.0%. Economists believe that inflation will remain at an elevated level as the price of crude oil continues rising.
The next important catalyst for the GBP/USD pair will be the upcoming BoE decision. Economists believe that the bank will decide to hike interest rates by 0.25% to 5.50%. Still, some economists expect the BoE will leave rates unchanged since the economy is slowing.
The GBP/USD rate also reacted to the latest Federal Reserve interest rate decision by the Federal Reserve. In a report, the bank decided to leave rates unchanged between 5.25% and 5.50%.
Jerome Powell, the bank’s governor, said that the bank would observe the state of the economy. As a result, he hinted that the bank could resume hiking rates in the next few meetings if inflation remains at an elevated level.
GBP/USD technical analysis
The GBP to USD has been in a strong bearish trend in the past few months as the UK and US economies diverged. It plunged to a low of 1.2330, much lower than the highest point in July. It has formed a falling wedge pattern, which is a bullish sign. The pair has dropped below the 50-period moving average.
Therefore, the pair will likely continue falling after the BoE decision. If this happens, the next level to watch will be at 1.2300. The alternative scenario is where the pair bounces back and retests the key resistance point at 1.2425.
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