GBP/USD Signal: Pound Sterling Could Have a Relief Rally

The GBP/USD pair will likely have a relief rally as some investors attempt to buy the dip. If this happens, the next key level to watch will be at 1.1150.

Bullish view

  • Buy the GBP/USD pair and set a take-profit at 1.1200.
  • Add a stop-loss at 1.0400.
  • Timeline: 1 day.

Bearish view

  • Set a sell-stop at 1.050 and a take-profit at 1.0350.
  • Add a stop-loss at 1.100.

The GBP/USD crash to a record low in the overnight session even after assurances by the Bank of England (BoE) and the UK’s Treasury Department. It dropped to a low of 1.0353, which was substantially lower than its year-to-date high of 1.3750.

Sterling sell-off continues

The GBP/USD price has been in a strong bearish trend in the past few months because of the substantially strong US dollar. The dollar index, which measures the greenback’s performance against a basket of currencies, has risen by over 20% this year alone.

US dollar’s strength continued after the Federal Reserve concluded its two-day monetary policy meeting on Wednesday last week. In it, the bank decided to hike interest rates by 0.75% and hinted that it will continue tightening in the coming months.

In a statement on Monday, Susan Collins, the new Boston Central Bank governor, said that more rate hikes were necessary. She argued that she was committed to bring inflation down even if it meant slowing the American economy.

The GBP/USD pair continued falling as investors continued worrying about the UK economy after the government unveiled a 45 billion pound tax cut. And during the weekend, the country’s Chancellor of the Exchequer noted that the government will do more to boost growth.

Therefore, analysts expect that the BoE will deliver an emergency rate hike to counter the weak sentiment. In a statement, Andrew Bailey, the BOE said that the bank was following the situation closely. However, he dampened sentiment by saying that the bank will make the determination after the next scheduled meeting in October. Analysts expect a 100 basis point hike.

Meanwhile, UK Gilts crashed, pushing the 10-year yield to 4.2% up from last Friday’s 3.5%. Two-year yields, which are good signals of the bank’s expectations, rose to 4.5%.

GBP/USD forecast

The GBP/USD pair has been in a strong bearish trend in the past few months. It crashed to a low of 1.0353, which was its all-time low. On the 4H chart, the pair moved below all moving averages while the Relative Strength Index (RSI) moved to 8.6, which was the lowest level in years.

The pair has moved below the 25-day and 50-day moving averages. Therefore, the pair will likely have a relief rally as some investors attempt to buy the dip. If this happens, the next key level to watch will be at 1.1150.

GBPUSD27092022

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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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