The pair will likely continue falling ahead of the upcoming Fed decision.
- Sell the GBP/USD pair and set a take-profit at 1.1300.
- Add a stop-loss at 1.1500.
- Timeline: 1-2 days.
- Set a buy-stop at 1.1450 and a take-profit at 1.1550.
- Add a stop-loss at 1.1350.
The GBP/USD price crashed to the lowest level in more than three decades amid concerns about the UK economy and an extremely strong US dollar. The pair dropped to 1.3836, meaning that it has fallen by more than 10% this year alone.
UK economy concerns
The UK economy is going through a challenging period as it moves away from the pandemic. Data published on Friday showed that retail sales dropped sharply in August of this year. According to the Office of National Statistics (ONS), the total retail sales fell by 1.6% in August, which was higher than the median estimate of a modest fall of 0.6%.
Retail sales have been affected by substantially weak wage growth and elevated levels. Data published on Wednesday showed that inflation eased slightly in August as government energy subsidies helped offset the situation. Still, analysts expect that real inflation excluding these subsidies will soon rise to over 18%.
The next key catalyst for the GBP/USD pair will be the upcoming interest rate decision by the Bank of England (BOE) that is scheduled for Thursday this week. Analysts expect that the bank will decide to hike interest rates by either 0.50% or 0.75% as its battle against inflation continues.
The GBP to USD exchange rate has also crashed because of the strong US dollar. The dollar index has rallied to the highest level in two decades as investors embrace a risk-off sentiment. Analysts believe that the Federal Reserve will continue with its interest rates hikes in the coming months.
This week, the Fed will also conclude its meeting on Thursday. Some analysts believe that the bank will deliver a jumbo interest rate hike of 1% for the first time in decades. Other analysts expect that it will hike by either 0.50% or 0.75%. It has already hiked by 225 basis points this year and reduced the size of its balance sheet.
The GBP/USD pair has been in a strong bearish trend in the past few months. On the four-hour chart, the pair managed to drop below the important support level at 1.1408, which was the lowest level this year. It has moved below all moving averages. The Relative Strength Index (RSI) has moved slightly above the oversold level.
The pair will likely continue falling ahead of the upcoming Fed decision. If this happens, the next reference level will be the psychological level at 1.1300.