Bullish view
Buy the GBP/USD pair and set a take-profit at 1.3650.
Add a stop-loss at 1.3450.
Timeline: 1-3 days.
Bearish view
Sell the GBP/USD pair and set a take-profit at 1.3450.
Add a stop-loss at 1.3650.
The GBP/USD pair was relatively unchanged on Wednesday as focus shifted to the rising US and UK government bond yields amid soaring inflation. It was trading at 1.3550, lower than last week’s high of 1.3656.
US and UK Government Bonds are Soaring
The GBP/USD pair rose as traders focused on the soaring US and UK government bond yields.
Data shows that the 30-year UK government bond yield soared to a multi-decade high of 5.790% from the year-to-date low of 5.018%. Similarly, the five-year yield rose to 4.60%.
Similarly, US government bond yields continued rising, with the ten-year rising to 4.46% and the 30-year hitting 5.03% for the first time since July last year.
US and UK bond yields have continued rising as energy prices remained at an elevated level amid the ongoing US-Iran war. These soaring prices mean that inflation will remain at an elevated level.
The most recent numbers showed that the headline Consumer Price Index (CPI) in the US jumped from 2.4% in February to 3.3% in March, while UK prices rose to 4.6%.
Therefore, analysts expect the Bank of England (BoE) to hike interest rates in the June meeting to counter the rising inflation. Still, the risk is that hiking rates will slow the economy, which is still in a stagflation.
The GBP/USD pair will next react to the upcoming macro data from the US. For example, ADP will publish the latest private payrolls data, which will provide more information about the state of the economy.
Also, several Federal Reserve officials like Austan Goolsbee, Beth Hammack, and Musalem will talk and provide hints on what to expect in the next meeting. The US will publish the latest non-farm payrolls data on Friday this week.
GBP/USD Technical Analysis
The daily chart shows that the GBP/USD pair has pulled back from last week's high of 1.3656 to the current 1.3550. It is now hovering at the 38.2% Fibonacci retracement level.
The 50-day and 100-day Exponential Moving Averages (EMA) have formed a bullish crossover, a sign that the momentum is continuing.
It remains slightly above the important support level at 1.3450, its lowest level last week. Therefore, the most likely GBP/USD forecast is bullish, with the next initial target being at 1.3650, its highest point on Friday last week.