Bullish View
- Buy the GBP/USD and set a take-profit at 1.3000.
- Add a stop-loss at 1.2800.
- Timeline: 1-2 days.
Bearish View
- Set a sell-stop at 1.2830 and a take-profit at 1.2750.
- Add a stop-loss at 1.2900.
The GBP/USD sunk to the lowest level since September 2020 as investors predicted that the Bank of England (BOE) will be more cautious in the coming months. The pair dropped to 1.2838, which was about 10% below the highest level last year.
BOE to Be Dovish?
The Bank of England has become one of the most hawkish central banks in the developed world. The bank started hiking interest rates in its December meeting. It then continued its rate hike cycle in February and in March and then hinted that it will continue with the pace in the coming months. The purpose of doing this is to lower the rising inflation rate.
However, there are risks that hiking interest rates so fast will have an impact on the UK economy. Data published on Friday revealed that the country’s retail sales declined sharply in March. Precisely, the headline sales declined by 1.4% in March while core sales fell by 0.6%. On a year-on-year basis, sales rose by 0.9% while core sales fell 0.6%. Notably, online sales crashed by over 26%.
Another notable data by Gfk showed that the UK consumer confidence continued dropping in April. It has dropped in the past four straight months.
Therefore, there are concerns that the UK economy will slow down as inflation rises, which will push the Bank of England to slow the pace of rate hikes.
If this happens, it means that the BOE and the Federal Reserve will start diverging. For one, in a statement last week, Jerome Powell said that the bank was committed to hiking interest rates gradually. He also hinted that the bank will also start reducing its balance sheet. His statement mirrored that of Mary Daly, a dovish Fed official, who said that the bank should move quickly.
GBP/USD Forecast
The four-hour chart shows that the GBP/USD pair moved below the key support level at 1.300. This was an important psychological level and also the lowest it has been since March. It also moved below the 25-day and 50-day moving averages while the Stochastic Oscillator and the Relative Strength Index (RSI) moved below the oversold level.
Therefore, the pair will likely retest the important resistance level at 1.300 and then resume the bearish trend in the coming days.
