Bearish View
- Sell the GBP/USD pair and set a take-profit at 1.1780.
- Add a stop-loss at 1.2050.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 1.2000 and a take-profit at 1.2100.
- Add a stop-loss at 1.1945.
The GBP/USD pair slumped to the lowest level since April 2020 as the political crisis in the UK escalated and the Fed sounded more hawkish. The pair dropped to a low of 1.1878, which was about 6% below the highest point in May.
UK Political Crisis
The UK economy is going through remarkable challenges with inflation soaring at the highest point in over 40 years. Retail sales have dropped and house prices remain at a record high.
At the same time, a political crisis has emerged that could derail the current administration and its policies. This week, several senior ministers like Sajid Javid and Rishi Sunak, resigned after new allegations against Boris Johnson were unveiled.
Johnson has vowed that he will remain in place as the Prime Minister. He has also replaced some of the resigning ministers. Still, it is unclear whether he will serve his full term as the country’s premier and the impact all this will have on the economy.
The GBP/USD pair has also crashed because of the strong US dollar. The dollar index has surged to the highest level in over 20 years as worries about a recession remains. It seems like many people are dumping the low-yielding currencies in favor of the stable greenback.
The Fed has committed to continuing with its hawkish policies. Minutes showed that most officials saw the need for more restrictive rates. They are now examining whether this month’s rate will be 50 or 75 basis points. Regardless of the rate, it will be the most hawkish that the bank has been in decades.
The GBP/USD price will react to the upcoming UK house price index by Halifax. The numbers are expected to show that house prices moderated slightly in June. The pair will also react to the upcoming US trade and jobs data.
GBP/USD Forecast
The four-hour chart shows that the GBP/USD pair has been in a strong bearish trend in the past few days. It managed to cross the important support at 1.1937, which was the lowest point this year. It also dropped below the important support at 1.2163.
The pair is trading at the first support of the standard pivot point. Further, it has moved below the 25-day moving average while the MACD has dropped below the neutral point. Therefore, the pair will likely keep falling as bears target the second support at 1.1780.
