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Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2000.
- Add a stop-loss at 1.2300.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2250 and a take-profit at 1.2350.
- Add a stop-loss at 1.2175.
The GBP/USD price moved sideways as investors reflect on last week’s monetary policy decisions by the Fed and the BoE. It was trading at 1.2166, where it has been in the past few days. This price is about 2.35% below the highest level last week.
Concerns about the UK economy
The GBP/USD exchange rate has gone nowhere in the past three days as the market reflected on the latest interest rate decisions by the Fed and BoE. In its statement, the Fed decided to hike interest rates by 0.50% and signaled that rates will need to remain high for a while. It expects to hike rates by another 0.75% in 2023 before taking a strategic pause.
In the UK, the Bank of England decided to hike interest rates by 0.50%. That was the ninth straight increase since December last year. In its statement, the bank said that inflation may have peaked and signaled that it has room for smaller rate increases in the coming year.
The main risk for the UK is that the UK economy is facing significant challenges. This week, some of the most important companies in the country like Royal Mail and nurses are staging major strikes to protest low wages amid soaring inflation. There is a likelihood that these strikes will lead to higher inflation and weak growth.
With the Fed and BoE decisions done with their December meetings, the pair will likely remain in a consolidation phase. As such, economic numbers will not have a major impact on the pair.
The only data to watch on Tuesday will be the latest American building permits and housing starts numbers. Economists expect the data to show that building permits dropped from 1.52 million to 1.48 million in November. Housing starts are also expected to have dropped as interest rates rose.
GBP/USD forecast
The GBP/USD price declined last week following the latest BoE and Fed decisions. As it dropped, it moved below the lower side of the ascending channel shown in orange. The pair also pulled back below the 25-day and 50-day moving averages, which have made a bearish crossover pattern.
It has also formed a bearish flag pattern while the price is a few pips below the standard pivot point. Therefore, the pair will likely continue falling with the next key level to watch is the first support of the standard pivot point at 1.2000.
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