Bullish View
Buy the GBP/USD and add a take-profit at 1.3350.
Add a stop-loss at 1.3150.
Timeline: 2 days.
Bearish View
Set a sell-stop at 1.3230 and a take-profit at 1.3150.
Add a stop-loss at 1.3300.
The GBP/USD pair is moving sideways ahead of the upcoming interest rate decision by the Bank of England (BOE). It is trading at 1.3250, where it has been in the past few days.
Fed and BOE Divergence?
The GBP/USD was little changed after the Federal Reserve delivered its decision on Wednesday. The bank decided to leave interest rate unchanged between 0% and 0.25%. At the same time, the bank hinted that it will increase rates three times next year in a bid to tame inflation.
The Fed also decided to boost tapering as it reduced the pace of asset purchases by about $30 billion. Therefore, it will end the program in March.
Focus now shifts to the Bank of England that will conclude its monetary policy meeting on Thursday. Analysts expect that the BOE will leave interest rates intact. At the same time, the bank will likely leave its asset purchases policy unchanged.
In other words, the BOE will be cautious considering that the UK economy has a cloudy outlook as the number of Covid-19 cases rise. Indeed, the country confirmed the highest number of daily increases since the pandemic started. As such, there is a likelihood that the new wave will lead to a slower recovery.
The BOE decision comes at a time when the UK has published strong economic numbers. On Wednesday, the Office of National Statistics (ONS) published strong inflation numbers. The headline CPI rose from about 4.3% in October to 5.2% in November. That was the biggest increase in decades. Core CPI, which excludes the volatile food and energy prices rose to 4%.
A day before that, the UK published strong employment numbers. The data showed that the economy created thousands of jobs while the unemployment rate fell. Therefore, the BOE thinks that aggressive tightening will dent the economy’s recovery.
GBP/USD Forecast
The four-hour chart shows that the GBP/USD pair has been moving sideways in the past few days. The pair is trading at 1.3250, which is a few points above the key support level at 1.3187. It is also along the 25-day moving average and the standard pivot point. The MACD has moved upwards in the past few days.
The pair will likely bounce back since the cautiousness of the BOE has already been priced in by the market. This will see it move above 1.3300.
