Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2650.
- Add a stop-loss at 1.2800.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2755 and a take-profit at 1.2825.
- Add a stop-loss at 1.2650.
The GBP/USD pair stalled after the strong wage numbers pointed to a potential hawkish Bank of England (BoE). It also wavered at 1.2740 ahead of the upcoming US inflation data and Federal Reserve interest rate decision.
BoE and Federal Reserve actions
The GBP/USD forecast wavered as UK bond yields and mortgage rates jumped after Tuesday’s jobs numbers. According to the Office of National Statistics (ONS), the country’s wage growth accelerated in April. Including bonuses, the country’s earnings index rose by 5.9%, higher than the median estimate of 5.7%.
However, the unemployment rate rose from 4.3% in March to a two-year high of 4.5%, signaling that the high interest rates are having a major impact on the economy. In line with this, another report revealed that mortgage rates rose while those in arrears jumped to the highest point in almost eight years.
The futures market is predicting that the Bank of England will deliver the first 0.25% rate cut by November. Some analysts believe that the BoE could surprise the market with a cut in its July meeting.
The UK will publish the latest GDP data on Wednesday morning. The figure is expected to show that the economy expanded by 0.8% in April after growing by 0.7% in the previous month. Also, the US will publish the latest manufacturing and industrial production numbers.
Meanwhile, the US will release its May inflation figure on Wednesday. Economists believe that the country’s inflation remained steady in May. The median estimate is that the headline Consumer Price Index remained at 3.4% in May while the core CPI improved to 3.5%.
These numbers will be followed by the Federal Reserve decision, which will provide more color about when the bank will start cutting rates. Higher-than-expected inflation rate means that the Fed will likely hold rates steady for longer.
GBP/USD technical analysis
The GBP/USD exchange rate moved sideways on Wednesday morning as traders focused on the upcoming Fed decision and US inflation data. It was trading at 1.2750, a few pips above the lower side of the ascending channel.
The pair is consolidating at the 50-period and 25-period moving averages, which is a sign of indecision among market participants. Meanwhile, the Relative Strength Index (RSI) has moved above the neutral point at 50 while the Awesome Oscillator has turned green.
It has also created a small bearish flag pattern, pointing to a potential bearish breakout. If this happens, the next point to watch will be at 1.2650.
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