Bearish view
Sell the GBP/USD pair and set a take-profit at 1.3300.
Add a stop-loss at 1.3450.
Timeline: 1-2 days.
Bullish view
Buy the GBP/USD pair and set a take-profit at 1.3450.
Add a stop-loss at 1.3300.
The GBP/USD exchange rate slipped to its lowest level since July this year. It fell to 1.3393, down more than 2% from its August high as focus shifted to the upcoming Bank of England (BoE) interest rate decision.
Bank of England Decision Ahead
GBP/USD pair slipped sharply after the Federal Reserve delivered its first interest rate decision of the cycle. It increased rates by 0.25% to between 3.75% and 4%, its highest level since last year.
The bank also signaled that it is not done hiking rates. Officials hinted that they will hike interest rates by 0.25% one more time this year. This move would bring rates to between 4% and 4.25%, making the US dollar more attractive.
In the statement, officials said that the rate hike was justified because of the elevated inflation. Data released last week showed that the headline and core inflation remained above the 2% target rate.
The next important catalyst for the GBP/USD pair will be the upcoming Bank of England (BoE) decision. This decision comes a day after a report showed that UK inflation remained strong in August. The headline CPI rose from 2.9% in July to 3.1% in August, while the core figure remained at 2.6%.
Most analysts expect the Bank of England to leave interest rates unchanged in this meeting. However, based on last week’s strong GDP report and Wednesday’s inflation figure, there is a likelihood that the bank will decide to hike rates by 0.25%. Alternatively, officials may hint of a future hike to contain the elevated inflation.
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The GBP/USD pair will react to some key numbers from the United States. The US will release key numbers like housing starts, building permits, and Philadelphia Fed manufacturing index data.
GBP/USD Technical Analysis
The daily chart shows that the GBP/USD pair has been in a strong sell-off in the past few days, moving from a high of 1.3675 on August 21 to the current 1.3387. It has already moved below the lower side of the ascending channel.
The pair also slipped below the 50% Fibonacci Retracement level and the 50-day Exponential Moving Average (EMA). It also slipped below the 50-day Exponential Moving Average (EMA), a sign that bears have prevailed.
Therefore, the pair will likely continue falling, potentially to the key support level of 1.3342, the 61.8% retracement level. However, with the BoE decision coming up, the pair may rebound as investors buy the dip.
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