Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.3800.
- Add a stop-loss at 1.3500.
- Timeline: 1-2 days.
Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.3500.
- Add a stop-loss at 1.3800.
The GBP/USD exchange rate pulled back sharply last week after the Bank of England (BoE) delivered its interest rate decision. It retreated from the year-to-date high of 1.3877 to the current 1.3612 as investors focus on the upcoming UK GDP and US jobs numbers.
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Bank of England Points to Rate Cuts Ahead
The GBP/USD pair retreated sharply after the Bank of England delivered its interest rate decision on Thursday last week. The bank left the interest rate unchanged as analysts were expecting.
Most notably, the bank decided to downgrade the country’s economic outlook. It now expects that the economy will slow to 0.6% this year, much lower than the previous estimate of 1.2%. It cited the relatively high taxes and inflation.
The bank decided to leave rates unchanged because of the elevated inflation, which remained above its 2% target. The most recent report showed that the headline Consumer Price Index (CPI) rose to 3.4%, the highest reading in the G7 countries.
Economists at the bank believe that the country’s economy will fall in the coming months, with those at ING predicting that it will move below 2% in the coming months.
The next important catalyst for the GBP/USD pair will be the upcoming US non-farm payrolls (NFP) data, which will come out on Wednesday. This will be an important report that will help the Federal Reserve when delivering its interest rate decision in March.
The UK will also release the latest GDP report on Thursday. Economists expect the upcoming report to show that the economy expanded by 0.2% in the fourth quarter after growing by 0.1% in the third quarter. The UK will also publish the latest manufacturing and industrial production data.
GBP/USD Technical Analysis
The daily timeframe chart shows that the GBP/USD exchange rate retreated from the year-to-date high of 1.3876 to the current 1.3600. It has moved below the important support level at 1.3727, its highest level in September last year.
It has held steady above the important support at 1.3500, which coincides with the 50-day Exponential Moving Average.
The pair has moved above the Strong, Pivot and Reverse of the Murrey Math Lines tool. Therefore, the most likely scenario is where it continues rising as bulls target the psychological level at 1.3800. A drop below the key support level at 1.3500 will invalidate the bullish outlook.