Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2700.
- Add a stop-loss at 1.2860.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2815 and a take-profit at 1.2900.
- Add a stop-loss at 1.2745.
The GBP/USD exchange rate was relatively volatile after the latest Bank of England (BoE) and Federal Reserve interest rate decisions. It initially fell to a low of 1.2710 after the BoE cut and then rose to 1.2800 after the US nonfarm payroll (NFP) data.
BoE and Fed interest rate decision
The GBP/USD was in the spotlight after the Federal Reserve and the Bank of England decisions. The Fed went first on Wednesday and left interest rates unchanged between 5.25% and 5.50% as most analysts were expecting.
However, the bank changed its tune and hinted that it would consider cutting interest rates in its September meeting. Such a rate cut would be contingent on the economy reporting relatively weak economic numbers.
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Chances of a rate cut rose after the US published weak economic numbers on Friday. The report showed that the economy created 114,000 jobs in July, missing the expected 178k. As it has done several before, the BLS also revised the June jobs report downwards.
The average hourly earnings dropped in July while the unemployment rate rose to 4.3%, its highest level in months. It has been in a slow increase after falling to 3.5% in 2023.
Therefore, these numbers confirmed that the Fed would cut interest rates in its next meeting in September. It will be the first interest rate cut since 2020 when the US was battling from the impact of the Covid-19 pandemic.
Meanwhile, in the UK, the Bank of England decided to cut interest rates by 0.25% for the first time since 2020. Most officials voted to slash rates since the bank has achieved its inflation target of 2.0%. Analysts now expect at least two more cuts this year, a move that could help the government fill a £22 billion budget hole.
GBP/USD technical analysis
The 4H chart shows that the GBP/USD pair has been on a slow downtrend after peaking at 1.3045 in July. It dropped and bottomed at 1.2710, its lowest point since July 3rd.
The pair has flipped the key support level at 1.2858, its highest swing on June 12 into a resistance point. It remains below the 50-period moving average while the MACD indicator has moved below the neutral point.
Therefore, the pair will likely continue falling as sellers target last week’s low of 1.2710. The stop-loss of this trade will be a move above 1.2860.
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