Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.3300.
- Add a stop-loss at 1.3000.
- Timeline: 1-2 days.
Bearish view
- Set a sell-stop at 1.3170 and a take-profit at 1.3000.
- Add a stop-loss at 1.3300.
The GBP/USD exchange rate popped to a high of 1.3296 in the overnight session after the Federal Reserve delivered a jumbo interest rate cut. It surged to its highest point since February 2022, making the sterling one of the best-performing currencies this year.
Fed and BoE convergence
There are signs that the Federal Reserve and the Bank of England have started to converge on monetary policy.
In a statement on Wednesday, the Fed decided to slash interest rates by 50 basis points for the first time in over four years.
The Fed hinted that it will deliver more cuts in the remaining meetings as it works to prevent a hard landing. Analysts noted that the statement and Powell’s statement were more dovish than expected.
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The decision came at a time when recent economic numbers are showing that the economy was softening. The unemployment rate is sitting comfortably above the 4% level while retail sales have dropped. Most importantly, the manufacturing sector has remained in a contraction zone for a while.
The GBP/USD pair also rose after the latest UK inflation numbers. According to the Office of National Statistics (ONS), the headline Consumer Price Index (CPI) remained unchanged at 2.2% while the core CPI rose from 3.3% to 3.6%.
These numbers came a day ahead of the Bank of England (BoE) interest rate decision. Analysts expect the bank to leave interest rates unchanged at 5.0%. It will then hint towards more cuts later this year.
Still, some analysts expect the bank to cut by 0.25% since the Federal Reserve made a bigger increase than expected.
GBP/USD technical analysis
The GBP/USD exchange rate has been in a strong bullish trend after bottoming at 1.0351 in 2022. It rose to a high of 1.3295 after the Fed rate cut, moving slightly above the key resistance point at 1.3140, its highest level in July 2023.
The pair has risen above the 50-week moving average and the 61.8% Fibonacci Retracement point. It also formed an ascending triangle pattern, a popular bullish sign. It has also formed a small bullish flag chart pattern.
Therefore, the pair will likely continue rising as bulls target the next key resistance point at 1.3300. The alternative scenario is where it retreats and retests the support at 1.3000, its lowest point last week.
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