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Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2170.
- Add a stop-loss at 1.2450.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2385 and a take-profit at 1.2450.
- Add a stop-loss at 1.2300.
The British pound came under selling pressure after the IMF warned about the state of the economy. The GBP/USD price dropped slightly to a low of 1.2292, the lowest point since January 25. Sterling has been in a slow sell-off after peaking at a high of 1.2455 on January 23rd.
IMF warning on the UK
The IMF warned about the state of the UK economy and Brexit concerns and elevated inflation risks. In its report, the agency said that the UK will be the only developed economy to sink into a recession this year. It expects that the economy will shrink by 0.5% even as the heavily-sanctioned Russia grows by 1%.
The blistering statement will likely have an impact on the meeting by the Bank of England (BoE) that starts today. Most analysts believe that the BoE is between a rock and a hard place. Further interest rate hikes will likely lead to more deterioration of the economy.
A report showed that most publicly-traded companies in the UK have announced profit warnings. Also, the number of company failures in the country has surged to decades high. At the same time, an easy-money policy will likely keep inflation entrenched.
The GBP/USD price will also react to the upcoming Fed decision scheduled for Wednesday. The CME FedWatch tool estimates that the bank will hike by 0.25% to between 4.50% and 4.75%. It also points to a 0.25% hike in its March meeting. Some analysts expect the bank to hike by 0.50% in this week’s meeting followed by a pause in May.
The meeting comes at a time when data is showing mixed sentiment. Consumer confidence dropped slightly in January. Another report revealed that the employment cost index rose by 1% in Q4, slower than expected.
GBP/USD forecast
The GBP/USD price has declined slightly in the past few days. This decline happened after the pair formed a double-top pattern at 1.2441. It recently formed a small triple-top pattern at the same point. The pair has also crossed the 25-period moving average while the Relative Strength Index (RSI) has moved below the neutral point at 50.
Therefore, the outlook of the pair is bearish as long as it is below the resistance at 1.2441. As such, the FOMC decision could push it to 1.2170 (January 17 low).
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