Bullish view
Buy the GBP/USD pair and set a take-profit at 1.3500.
Add a stop-loss at 1.3225.
Timeline: 1-2 days.
Bearish view
Sell the GBP/USD pair and set a take-profit at 1.3225.
Add a stop-loss at 1.3500.
The GBP/USD exchange rate wavered after the Federal Reserve and the Bank of England (BoE) delivered their interest rate decisions. It dropped to 1.3340, a few points below last week’s high of 1.3470, with investors focusing on key macro data from the UK.
UK Inflation Data Ahead
The GBP/USD pair wavered after the Federal Reserve and Bank of England interest rate decisions last week. In a statement, the bank decided to leave interest rates unchanged, and hinted at more hiking.
Economists now expect that the bank will hike interest rates several times this year. In separate reports, analysts at JP Morgan and Barclays predicted that the bank will hike interest rates two times this year, with the first increase happening in April.
The bank is concerned that inflation will remain substantially high in the coming months because of the ongoing war in Iran. Energy prices have surged, with analysts expecting the headline Consumer Price Index (CPI) rising to 5% this year.
The ongoing inflation numbers mean that the UK has moved into stagflation as the economic growth is still limited. Economists polled by Reuters expect the upcoming UK inflation rose by 3% in February, while the core CPI remained at 3.1%. The BoE targets an inflation figure of 2%.
Like the Bank of England, the Federal Reserve left interest rates unchanged between 3.50% and 3.75%. With inflation expected to keep rising, chances are that prices will continue rising in the coming months, making it hard for the Fed to cut interest rates as Donald Trump wants. Indeed, a report released last week showed that the headline and core Producer Price Index (PPI) rose to 3.4% in February before the war started.
GBP/USD Technical Analysis
The daily timeframe chart shows that the GBP/USD pair was highly volatile last week. On the positive side, the pair has formed a falling wedge pattern, a common bullish reversal sign in technical analysis.
The pair has also formed an inverted head-and-shoulders pattern. Also, the Percentage Price Oscillator (PPO) has formed a bullish crossover pattern.
Therefore, the pair will likely resume the uptrend as long as it is above this month’s low of 1.3220. If this happens, the next key levels to watch will be the psychological level at 1.3500.