Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.3800.
- Add a stop-loss at 1.3600.
- Timeline: 1-2 days.
Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.3600.
- Add a stop-loss at 1.3800.
The GBP/USD exchange rate continued its recent surge and reached its highest level since July last year as the US dollar sunk to the lowest level in four months. It jumped to a high of 1.3730, up sharply from the October low of 1.3016.
US Dollar Plunges Ahead of the FOMC Decision
The GBP/USD exchange rate continued rising as the US Dollar Index plunged to the lowest level in four months, as investors moved to safe havens like gold and silver. The greenback retreated as investors remained concerned about the potential government shutdown because of the ongoing crisis in Minnesota.
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Odds of a government shutdown jumped after a Border Patrol Agent shot and killed an American as the crackdown on immigrants continued. Democrats have argued that any other spending package will need to address the Department of Homeland Security issues.
The next important catalyst for the GBP/USD exchange rate will be the upcoming US consumer confidence report, which will come out later today. Economists polled by Reuters expect the data report to show that consumer confidence rose to 90.9 in January from the previous 89.1 as gasoline prices dropped.
The US will also release the latest House Price Index data, which will provide more information about the housing sector. These numbers will come a day before the Federal Reserve delivers its interest rate decision.
Most economists believe that the Fed will leave interest rates unchanged between 3.50% and 3.75%. A Polymarket poll places the odds of status quo at 99%. The bank has already delivered three rate cuts in the ongoing cycle.
Meanwhile, the Bank of England (BoE) is expected to maintain a hawkish tone after a report released last week showed that the country’s inflation rose 3.4% in December, much higher than the target of 2.0%.
GBP/USD Technical Analysis
The daily timeframe chart shows that the GBP/USD exchange rate has rebounded from a low of 1.300 in November last year to the current 1.3700. It formed an inverted head-and-shoulders pattern, which is a common bullish reversal sign.
The pair has remained above the 50-day and 100-day Exponential Moving Averages (EMA). Also, the Relative Strength Index (RSI) has continued rising and moved to the overbought level.
Therefore, the pair will likely continue rising as bulls target the next key resistance level at 1.3800. A drop below the key support level at 1.3600 would invalidate the bullish outlook.
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