Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2825.
- Add a stop-loss at 1.2600.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.2680 and a take-profit at 1.2600.
- Add a stop-loss at 1.2750.
The GBP/USD exchange rate moved sideways after the Federal Reserve interest rate decision and as traders waited for the upcoming Bank of England (BoE) meeting. It has remained at 1.2700 in the past few days even as other currencies pulled back against the US dollar.
Bank of England decision
The Federal Reserve concluded its two-day monetary policy meeting on Wednesday and did what most analysts were expecting. It left interest rates unchanged between 5.25% and 5.50% and continued with its quantitative tightening (QT) process.
The Fed also pointed that the economy was doing well and hinted that it was not ready to cut rates for now since inflation remains above its 2% target. Recent economic numbers have shown that the economy is strong. For example, it expanded by 3.3% in the fourth quarter after growing by 4.9% in Q3.
The next important GBP/USD news will be the upcoming interest rate decision by the Bank of England (BoE). Unlike the Fed, the BoE is in a more difficult place because of the state of the British economy.
The UK is not recovering as fast and inflation remains double the BoE’s target of 2.0%. Company bankruptcies have jumped to their highest level in years. Therefore, leaving interest rates this high could make the situation worse.
On the other hand, sounding dovish could incentivize spending and push inflation higher. Therefore, like the Fed, the BoE will leave rates at their 16-year high in this meeting. Andrew Bailey, the governor, will likely warn that rates will remain higher for longer. Most analysts expect it to start cutting them in the second half of the year.
The other crucial GBP/USD news will be the upcoming US Non-Farm Payrolls (NFP) data. Economists believe that the labor market cremains steady in January even as companies like PayPal and Citigroup announced layoffs this week.
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GBP/USD technical analysis
The GBP/USD exchange rate has remained in a consolidation phase in the past few weeks. On the daily chart, the Average True Range (ATR), a good measure of volatility, has dropped to its lowest point since September 28. The pair has also moved slightly above the 50-day moving average.
It has also formed a symmetrical triangle pattern and is nearing its confluence level. Since this triangle formed during an uptrend, there is a likelihood that it will have a bullish breakout in the near term. If this happens, the initial resistance point to watch will be at 1.2825, its highest point on December 28th.
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