Bullish view
- Buy the GBP/USD and set a take-profit at 1.3620.
- Add a stop-loss at 1.3540.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.3550 and a take-profit at 1.3500.
- Add a stop-loss at 1.3620.
The GBP/USD pair held steady as focus remained on the rising American and UK bond yields. The pair rose to a high of 1.3565, which was higher than Monday’s low of 1.3535.
Bond Yields Jump
American and British bond yields have been in a bullish trend in the past few weeks as investors anticipate more tightening by the Fed and Bank of England. In the UK, the 10-year gilt jumped to 1.1915%, which was its highest level since late 2018.
This rally happened as investors predicted that the Bank of England (BOE) will continue with its tightening policies after it hiked rates by 0.25% in December.
Meanwhile, in the US, the 10-year bond yield rose to 1.79%, which was the highest level since 2019. The bond sell-off also continued in the 30-year market, whose yield rose to 2.13%.
Analysts expect that the Federal Reserve will take a combative role this year in its bid to lower inflation. That will involve ending its quantitative easing policy in March or earlier and then immediately hiking interest rates.
Conditions look good for the Fed to take these actions. For example, data published on Friday revealed that the unemployment rate has collapsed to the lowest level since the pandemic started. Subsequently, wages have also jumped sharply in the past few months as the labor market tightens.
As part of its dual mandate, the bank is also watching the inflation figures. On Wednesday, the US statistics agency will publish the latest inflation reading. Economists expect the data to show that the headline consumer price index (CPI) rose to 7.0% while core CPI rose to 5.4%. These will be the biggest numbers in decades.
Later on Tuesday, Jerome Powell will provide more pointers about what the Fed will do in the upcoming meetings.
GBP/USD Forecast
The three-hour chart shows that the GBP/USD pair has been in a bullish trend in the past few weeks. Along the way, the pair has remained above the 25-day and 50-day moving averages. It has also moved above the Ichimoku cloud while the moving average convergence divergence (MACD) has moved above the neutral line.
Therefore, the pair will likely keep rising as investors price in a convergence between the Fed and the Bank of England. The next key reference level to watch will be at 1.3620.
