Bullish view
- Set a buy-stop at 1.2425 and a take-profit at 1.2525.
- Add a stop-loss at 1.2275.
- Timeline: 1-2 days.
Bearish view
- Add a sell-stop at 1.2276 and a take-profit at 1.2170.
- Set a take-profit at 1.2350.
The GBP/USD price rose to 1.2400after the Fed delivered a 0.25% rate hike on Wednesday. The normal rate hike came after the bank increased by 0.50% in its December meeting. Before that, it had hiked by 0.75% in the previous four meetings. The next main catalyst for the GBP to USD exchange rate will be the upcoming Bank of England (BoE) decision.
Fed and BoE decisions
In its decision, the Fed decided to hike by 0.25% and pointed to more increases in the coming months. The bank noted that inflation was falling but highlighted other risks facing the economy. For example, recent data have shown that retail sales have pulled back in the past few months. And the number of layoffs by blue-chip companies have increased. Firms like PayPal, Intel, and Rivian announced large layoffs.
The GBP/USD price will next react to the upcoming Bank of England decision. Unlike the Fed, economists expect that the BoE will hike rates by 0.50% since it is significantly behind the Fed. However, analysts believe that the bank is also nearing its peak rate hikes. That’s because further increases could make the country’s recession worse.
GBP/USD forecast
The GBP/USD price initially pulled back and retested the crucial support at 1.2276 after the Fed decision. This was an important level since it coincided with the lowest point on January 24. It was also the lower side of the horizontal channel that has been forming since January 18. This channel’s key support and resistance levels are at 1.2276 and 1.2441.
This consolidation came after the pair formed what looks like a cup and handle pattern. As such, it could be part of the handle section. It has jumped above the Ichimoku cloud and the 50-period moving average. The Relative Strength Index (RSI) has moved above the neutral point of 50.
Therefore, the pair will likely continue rising as the spread between the Fed and BoE rate hikes continue. A clearer bullish breakout will only be confirmed if the pair moves above the year-to-date high of 1.2441. If this happens, the next level to watch will be the psychological point at 1.2550.
On the other hand, a drop below this week’s low of 1.2276 will signal that there are still sellers left who will be keen to push it to the support at 1.2170 (January 17 low).
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