GBP/USD Forex Signal: Path of the Least Resistance is Lower Ahead of Fed

Crispus Nyaga

The next key catalyst for the GBP/USD pair will be the upcoming decision by the Bank of England (BoE). 

Bearish view

  • Sell the GBP/USD pair and set a take-profit at 1.1250.
  • Add a stop-loss at 1.1465.
  • Timeline: 1-2 days.

Bullish view

  • Set a buy-stop at 1.1460 and a take-profit at 1.1550.
  • Add a stop-loss at 1.1350.

The GBP/USD price crashed to the lowest level since the 1980s as investors continued focusing on the upcoming central bank decisions. The pair retreated to a low of 1.1368, which was about 3.22% below the highest level this month. It has fallen by more than 16% this year alone.

Fed and BoE decisions

The GBP/USD price continued its bearish trend on Wednesday as investors waited for the upcoming interest rate decision by the Fed. This decline coincided with another drop of American stocks as the Dow Jones fell by 500 points. Bond yields continued rising.

The Federal Reserve will conclude its two-day meeting during the American session later today. Most analysts believe that the bank will continue with its hawkish tone in a bid to fight the soaring inflation. Precisely, analysts expect that the bank will hike rates by 0.75%. This will be the third jumbo rate hike this year.

It will imply that the bank has hiked rates by 300 basis points year-to-date. At the same time, the bank has been implementing its quantitative tightening (QT) policies in a bid to reduce its $9 trillion balance sheet. In addition to the rate hike, the US dollar will react to the projections of rate hikes by the committee members.

This tightening is having an impact on the American economy. For example, data published on Tuesday showed that building permits crashed by 10% in August.

The next key catalyst for the GBP/USD pair will be the upcoming decision by the Bank of England (BoE). Like the Fed, the BoE will also continue tightening by delivering its seventh rate hike since December.

The BoE is in a difficult situation because the UK is expected to have the slowest economic growth in the G10 countries. Excluding subsidies, the country’s inflation is expected to rise to over 18% in 2023.

GBP/USD forecast

The GBP/USD pair has been in a strong downward trend in the past few weeks and is now hovering at the lowest level since 1987. The pair has moved below the important support level at 1.1400, which was the lowest point on September 6.

It has dropped below all moving averages while the Relative Strength Index (RSI) has moved below the neutral point at 50. Therefore, the pair’s path of the least resistance is lower, with the next key support level being at 1.1300.

GBP/USD

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Crispus Nyaga
Crispus Nyaga is a financial analyst, coach, and trader with more than 8 years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx. Further, he has published widely in platforms like SeekingAlpha, Investing Cube, Capital.com, and Invezz. In his free time, he likes watching golf and spending time with his wife and child.

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