The GBP/USD exchange rate put a siege to six-month highs in recent trading, but uncertainty over this week's interest rate decisions and US economic data could prevent further recovery in the coming days. For the third day in a row, the GBP/USD currency pair is exposed to selling operations with losses towards the 1.2337 support level and settles around the 1.2352 level at the time of writing the analysis. Its last gain amid the decline of the US dollar exceeded the resistance level of 1.2447.
In general, the weak appetite for the sterling dollar has kept pace near its mid-December highs, but this week's US Federal Reserve (Fed) decision and US economic data may turn the tide in favor of the dollar.
Will Fed Reserve Reverse Easing of Financial Conditions?
Wednesday's decision is tempered by economic data including the Institute for Supply Management (ISM) PMI surveys and the US nonfarm payrolls report for January. Commenting on that, Joseph Caporso, the analyst at the Commonwealth Bank of Australia, says, "We prefer an increase of 50 basis points in the funds rate. However, we consider that the decision of the Federal Open Market Committee FOMC will be precisely balanced between an increase of 25 basis points and 50 basis points".
Overall, the recent public statements by policy makers have led the market to expect a 0.25% increase in US interest rates this week, but the Fed may try to surprise the hawks if it wants to reverse the recent decline in US bond yields or dampen speculation about interest rate cuts. later this year.
Falling yields have led to a general downturn in financial conditions since November, weighing on the US dollar and prompting an outcry from FOMC members in the process. Any successful attempt to turn the tide is likely to undermine sterling this week. But without a hard-hitting surprise, a weaker dollar could help keep sterling afloat ahead of the Bank of England's interest rate decision on Thursday.
Thursday's decision is widely expected to raise the Bank of England rate from 3.5% to 4% while many economists also expect the Bank of England to confirm that the end of the interest rate cycle is imminent, although there are reasons why the bank might choose to do so. Keep future policy options open instead. These reasons include the latest data showing that core inflation continued to rise in December and wage growth accelerated again in November, as well as other figures indicating that the British economy has not slowed as fast as the Bank of England expected in its last forecast.
Technical analysis of the sterling/dollar pair:
- The price of the GBP/USD currency pair is consolidating with its lower highs and higher lows within a symmetrical triangle pattern.
- The price may be due to the penetration as the installation becomes tighter.
- The resistance seems to be holding so far, and the support is surrounded by the dynamic support at the moving averages.
- The continued upward pressure could lead to another test of resistance and possibly a breakout higher.
However, a bearish crossover appears to be brewing, with the gap between the moving averages narrowing significantly. If this continues, a breakout of the downside may follow and lead to a decline that is the same height as the chart formation. Stochastic has just started to head down from overbought territory, indicating that bearish pressure is underway. The oscillator has a lot of ground to cover before exhaustion among sellers reflects. The RSI is moving sideways to reflect neutrality, but the oscillator seems to be heading down as well. In doing so, GBP/USD could follow suit as bearish pressure builds. A break below the support around 1.2375 could be followed by a decline at the same height as the triangle, which extends around 150 pips.
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