Bullish view
Buy the GBP/USD pair and set a take-profit at 1.3400.
Add a stop-loss at 1.3150
Timeline: 1-2 days.
Bearish view
Sell the GBP/USD pair and set a take-profit at 1.3150.
Add a stop-loss at 1.3400.
The GBP/USD pair slipped a bit as geopolitical risks rose and after the Federal Reserve delivered its interest rate decision. It was trading at 1.3270 on Thursday, down modestly from the year-to-date high of 1.3866.
Bank of England Interest Rate Decision
The GBP/USD pair retreated as investors reacted to the latest Federal Reserve interest rate decision. Officials, as was widely expected, left interest rates unchanged between 3.50% and 3.75%.
The Fed hinted that it was not in a hurry to continue cutting interest rates this year as inflation remains a challenge. A report released on Wednesday showed that the headline Producer Price Index (PPI) rose from 2.9% in January to 3.4% in February. The core PPI rose to 3.9% from the previous 3.5%.
This inflation will likely continue rising as the ongoing Iran war escalates. Iran has warned that it will intensify its attacks on energy infrastructure in the region after Israel attacked its gas fields.
As a result, Brent, the global benchmark, has jumped to $109. Natural gas reserves have also continued rising this year. As such, analysts are now predicting that the Federal Reserve will hike interest rates this year.
The GBP/USD pair will next react to the upcoming Bank of England (BoE) interest rate decision, which comes out later today. Economists expect the bank to leave rates intact at 3.75%, and possibly hike later this year.
The pair will also react mildly to the UK jobs numbers. Economists expect the upcoming report to show that the unemployment rate rose from 5.2% in December to 5.3% in January, while the economy shed over 4k jobs during the month.
GBP/USD Technical Analysis
The daily chart reveals that the GBP/USD pair was trading at 1.3285 on Thursday morning. It has dropped sharply from the year-to-date high of 1.3866.
Top oscillators have been in a downward trend, while the pair remains below the Ichimoku cloud and the Supertrend indicators.
On the other hand, the pair has formed an inverted head-and-shoulders pattern, a popular bullish reversal sign in technical analysis.
Therefore, while the pair may continue falling, the inverted H&S pattern means that it will resume the uptrend. If this happens, the next important target to watch will be the psychological level at 1.3400. On the other hand, a drop below the right shoulder level at 1.3215 will invalidate the bullish outlook.