Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.3400.
- Add a stop-loss at 1.3200.
- Timeline: 1-2 days.
Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.3200.
- Add a stop-loss at 1.3400.
The GBP/USD exchange rate rose sharply, reaching its highest level since February 2022 after the Federal Reserve and the Bank of England (BoE) interest rate decisions. It jumped to a high of 1.3323, much higher than the year-to-date low of 1.2300. This increase makes sterling one of the best performing currencies this year.
Fed and BoE decisions
The Federal Reserve and Bank of England delivered different interest rate decisions last week.
In its decision on Wednesday, the Fed decided to deliver a jumbo cut of 0.50% in a unanimous vote. Officials noted that their hope was that inflation would retreat to the 2% level soon.
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Also, they are now more concerned about the labor market, which has continued to worsen this year. The unemployment rate has risen to 4.2% while wage growth has slowed recently. More data showed that the number of vacancies in the US has dropped to the lowest level in two years.
Meanwhile, in the UK, the BoE decided to leave interest rates unchanged at 5% and reiterated its plans to continue with gradual easing. The bank is concerned about cutting rates so quick, which will stir inflation in the country.
A report released by the Office of National Statistics (ONS) showed that the headline CPI remained at 2.2% even as service inflation rose to 5.6%. There are also signs that the economy has lost momentum as it stagnated in June and July.
Therefore, with the Fed and the BoE having delivered their interest rate decisions, the GBP/USD pair will react mildly to the upcoming economic numbers from the US and the UK. The top data to watch will be the flash manufacturing and services PMI data and US consumer confidence.
GBP/USD technical analysis
The GBP/USD exchange rate has been in a strong bull run this year, and last week, it crossed the important resistance level at 1.3262, its previous highest level this year. By moving above that level, it invalidated the double-top pattern that was forming.
The pair has constantly remained above the 50-day moving average. It has also formed a series of higher highs and higher lows while the Percentage Price Oscillator (PPO) has continued rising.
Therefore, the pair will likely continue rising as signs of a Fed and BoE divergence emerge. If this happens, the next point to watch will be at 1.3400.
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