Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2800.
- Add a stop-loss at 1.2450.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.2600 and a take-profit at 1.2500.
- Add a stop-loss at 1.2700.
The GBP/USD exchange rate jumped to the highest point since May 31st as the focus shifted to the upcoming US inflation data and the Bank of England (BoE) interest rate decision. The pair jumped to a high of 1.2680, which was over 21% from the lowest point in 2022.
US inflation and BoE decision
The GBP/USD pair rose on Monday as the UK markets remained closed because of a bank holiday. The only economic data that will come out on Tuesday will be the upcoming UK house price index (HPI) data by Halifax. These numbers are expected to show that the country’s house prices rose slightly by 0.2% in April. However, the impact of the data on the pair will be limited.
The next key data to watch will come out on Wednesday when the US will publish the latest consumer price index (CPI) data. These numbers will be important since the Fed has committed to be data-dependent when making the next decision.
Economists believe that America’s inflation remained at an elevated level in April. Precisely, the expectation is that the headline CPI remained at 5.0% in April, higher than the Federal Reserve target of 2.0%.
A higher inflation rate than expected will provide the Fed with more incentives to hike interest rates since the labor market remains tight. Data published on Friday revealed that the unemployment rate dropped to 3.4% in April.
The other key news to watch will be the upcoming interest rate decision by the Bank of England scheduled on Friday. Economists expect that the bank will hike interest rates by 0.25% and push them to 4.50%. Higher rates are needed because the UK has one of the highest inflation rate in the developed countries.
GBP/USD technical analysis
The GBP/USD exchange rate has been in a strong bullish trend in the past few days. It has managed to move above the key support level at 1.2447, the highest point on January 23rd and December 14. It has also moved above the 25-day and 50-day exponential moving averages (EMA).
The pair is also approaching the 61.8% Fibonacci Retracement level at 1.2796 while the Relative Strength Index (RSI) has moved close to the overbought level. Therefore, the pair will likely continue rising as buyers target the 61.8% retracement level at 1.2796.
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