Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2600.
- Add a stop-loss at 1.2800.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2730 and a take-profit at 1.2830.
- Add a stop-loss at 1.2650.
The GBP/USD price retreated after a quite eventful week in the UK and the UK. The pair plunged to a low of 1.2675 on Monday as traders continued to assess the impact of the monetary policy decisions by the Fed and BoE.
Fed and BoE decisions
The GBP/USD pair rose sharply after the Fed and the Bank of England diverged last week. In its decision, the Fed decided to leave interest rates unchanged between 5.25% and 5.50%. It was the third meeting in a row that the bank left rates intact.
The biggest news in the report was the dot plot, which showed that the bank would start cutting rates in 2024. This view was also shared by Jerome Powell, who reiterated that rate cuts were possible if inflation continued falling.
In London, the situation was different as Andrew Bailey pushed back against hopes of rate cuts. In his statement, he maintained that the bank would hold rates steady since inflation was a big challenge.
Most economists believe that the BoE will start cutting rates in either June or July since the British economy is slowing. Data published on Wednesday revealed that the economy contracted in October.
There will be some important catalysts during the week. The Office of National Statistics (ONS) will publish the latest UK inflation numbers on Wednesday. Economists believe that the country’s inflation continued falling in November.
Precisely, the median estimate of analysts is that the country’s inflation dropped from 4.6% in October to 4.4% in November as energy prices dropped. Core CPI is expected to retreat from 5.7% to 5.50%. These numbers show that inflation remains stubbornly high in the UK.
The other key GBP/USD news will be the upcoming UK retail sales data and US consumer confidence and PCE data.
GBP/USD technical analysis
The GBP/USD pair retreated as traders questioned the next actions of the Federal Reserve. On the 4H chart, the pair retreated below the key support level st 1.2733, the highest swing on November 29th. The pair has moved below the median line of the Andrews Pitchfork tool.
Also, the Relative Strength Index (RSI) and the Stochastic Oscillator have pointed downwards. It is also nearing the first resistance of the Woodie pivot point. Therefore, the pair will likely continue falling as sellers target the key support at 1.2600.
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