Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.1850.
- Add a stop-loss at 1.2150.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2100 and a take-profit at 1.2150.
- Add a stop-loss at 1.200.
The GBP/USD is hovering near its lowest level since December 1 as the US dollar strength continued. It pulled back to a low of 1.200, which was lower than this month’s high of 1.2446. This price is still a few percentage points above the lowest point in 2022.
US dollar strength continues
The GBP/USD pair pulled back as the US dollar index staged a slow comeback. The greenback has rose modestly after the Federal Reserve delivered a hawkish monetary policy in December. In it, the bank decided to hike interest rates by 0.50% after rising by 0.75% in the past four straight meetings.
The Fed also warned that it will continue hiking in the coming year. Recent data has shown that the bank has more room to hike interest rates. For example, on Thursday, the US published strong GDP data. The economy expanded by more than 3% in Q3 after slumping in the previous two straight quarters.
Another data published on Friday revealed that the country’s personal consumption expenditure (PCE) rose at a faster pace than expected. PCE is the most important inflation data that the Federal Reserve watches.
Therefore, analysts expect that the Fed will hike rates by 0.50% in February followed by at least two more hikes in March and April.
Meanwhile, the GBP/USD pair has also dropped because of the weakening of the British economy. Most economists expect that economy will have the slowest recovery among G20 countries. As a result, the Bank of England (BoE) could struggle to hike interest rates in 2023.
There will be no major economic data from the UK on Tuesday. The only key data in the US will be the upcoming US house price index (HPI) data. Economists believe that US house prices continued dropping as mortgage rates rose.
GBP/USD forecast
The GBP/USD price has been in a strong bearish trend in the past few weeks. As it dropped, it moved below the lower side of the ascending channel. The 25-day and 50-day moving averages have also made a bearish crossover pattern. It also dropped below the Woodie pivot point of 1.2100.
The pair also formed a small head and shoulders pattern. Therefore, the pair will likely continue falling with the next key level to watch being at 1.1850. The stop-loss of this view will be at 1.2150.
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