Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2285.
- Add a stop-loss at 1.2425.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2360 and a take-profit at 1.2425.
- Add a stop-loss at 1.2285.
The GBP/USD exchange rate slipped for the third straight day on heightened Bank of England (BoE) interest rate cut hopes. The pair plunged to a low of 1.2300, its lowest swing since November 2023. It has plunged by over 4.23% from its highest point this month.
BoE rate cut hopes
The GBP/USD pair continued its strong sell-off this week as the US dollar index (DXY) rose above $106. It slipped as investors continued focusing on the next actions by the Bank of England, which is expected to slash interest rates earlier than the Fed.
Most analysts expect that the bank will start cutting interest rates either in May or June of this year if inflation continues falling. That’s because the country’s inflation has continued falling in the past few months.
The most recent economic data by the Office of National Statistics (ONS) revealed that the headline CPI dropped from 3.4% in February to 3.2% in March. Similarly, the core CPI retreated to 4.2% and analysts believe that the bank will continue falling.
In a statement last week, Dave Ramsden, an official of the BoE, noted that energy prices will help inflation move to the 2% target soon. He expects that inflation will hold at about 2% in the next three years.
Still, there is a risk that the country will move into a reflation as we have seen in the United States where the headline Consumer Price Index (CPI) jumped to 3.5% in March. Also, the weakening pound could push to higher inflation since the UK imports substantial amounts of oil.
Looking ahead, the GBP/USD pair will react to the upcoming manufacturing and services PMI numbers from the US and the UK. Economists expect the flash figures from the UK to rise to 50.3 and 53, respectively.
The other important economic numbers scheduled for Tuesday will be the latest building permits and new home sales data. Economists see the report coming in at 1.48 million and 668k, respectively.
GBP/USD technical analysis
The GBP/USD pair has been in a strong bearish trend in the past few weeks. It has dropped from a high of 1.2892 to a low of 1.2300 on Monday. The pair has moved below the important support level at 1.2500, its lowest swing in December last year.
On the daily chart, the 50-day and 200-day Arnaud Legoux Moving Averages (ALMA) have formed a bearish cross pattern. In most cases, this pattern is one of the most bearish signs in the market. The Relative Strength Index (RSI) and the MACD have all continued falling.
Therefore, the outlook for the GBP to USD pair will likely continue falling as the US dollar strength gains steam. This view will be confirmed if the pair moves below this week’s low at 1.2300.
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