Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2535.
- Add a stop-loss at 1.2300.
- Timeline: 1-2 days.
Bearish view
- Sell the pair and set a take-profit at 1.2300.
- Add a stop-loss at 1.2520.
The GBP/USD price drifted upwards during the Asian session as the focus shifted to the upcoming interest rate decision by the Bank of England (BoE). It also rose after the latest UK inflation numbers and the hawkish Fed interest rate decision. It moved to a high of 1.2447, which was the highest point in months.
Bank of England's decision
The Bank of England will conclude its final monetary policy meeting of the year on Thursday. Economists believe that the bank will continue with its tightening process in a bid to fight the elevated inflation. It will downshift its rate hikes by raising by 0.50%.
The decision comes a day after the UK published elevated but encouraging inflation data. According to the Office of National Statistics, headline inflation dropped to 0.4% in November while core inflation moved lower to 0.3%. On a year-on-year basis, inflation dropped to 10.7% from the previous 11.1%. Core inflation edged downwards to 6.3%.
Therefore, the BoE will likely continue rising and hint that more rate hikes will come in 2023. Still, analysts believe that the end is nearing the hiking cycle. More aggressive tightening could push the UK into a severe recession.
The BoE decision will come a day after the Federal Reserve delivered a hawkish statement. In it, the bank decided to hike interest rates by 0.50% as was widely expected. It then surprised the market by sounding more hawkish. It hinted that it will hike rates by 0.50% in February followed by 0.25% in March. If this happens, it will push rates to the highest level in decades.
With the final Fed decision of the year done, the upcoming US retail sales and manufacturing data will have no major impact on the pair.
GBP/USD forecast
The GBP/USD price has been in a strong bullish trend in the past few weeks. As it rose, the pair formed an ascending channel shown in black. It also moved above the 25-day and 50-day moving averages, which is a bullish sign. The awesome oscillator has moved above the neutral level while the RSI has continued rising.
Therefore, the sterling will likely continue soaring ahead and after the BoE decision. This rally will see it rise to the upper side of the channel at 1.2550. The stop-loss for this trade will be at 1.2280.
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