Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.3100.
- Add a stop-loss at 1.2850.
- Timeline: 1-2 days.
Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2850.
- Add a stop-loss at 1.3100.
The GBP/USD exchange rate tilted downwards after the UK published weak economic data on Friday. It retreated from the year-to-date high of 1.2988 on Wednesday to a low of 1.2935. The pair remains significantly higher than the year-to-date low of 1.2100.
Bank of England and FOMC decisions
The GBP/USD pair has moved downwards after the UK published weak economic numbers. According to the Office of National Statistics (ONS), the economy contracted by 0.1% in January, missing the consensus estimate of 0.1%.
More data shows that the manufacturing and industrial production numbers contracted by 1.5% and 0.9%, respectively. The country’s construction output dropped by 0.2% during the month.
These numbers came a few days before the Bank of England (BoE) interest rate decision. Analysts expect that the bank will leave interest rates unchanged at 4.5% and signal that it will deliver more cuts later this year. However, with the economy contracting, there is a likelihood that the bank will cut rates by 0.25%.
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The GBP/USD pair will also react to Wednesday's Federal Reserve interest rate decision. Like the BoE, analysts expect the Fed will leave interest rates unchanged at 4.50% in its second meeting of the year.
In its last meeting, the bank hinted that it would deliver two rate cuts this year. Since then, officials have hinted that they will not be in a hurry to cut rates until inflation moves towards 2%.
Data released last week showed that US inflation dropped in February, with the headline CPI falling to 2.8% and the core figure moving to 3.1%. However, these numbers did not include the impact of Donald Trump’s tariffs, which are expected to push prices higher in the longer term.
GBP/USD technical analysis
The daily chart shows that the GBP/USD pair has been in a strong uptrend in the past few months as the US dollar index slipped. This rally faded after the UK published weak GDP, manufacturing, and industrial production data.
The pair is hovering at the 61.8% Fibonacci Retracement level. Also, the 50-day and 100-day Exponential Moving Averages (EMA) are about to cross each other, forming a mini golden cross.
Therefore, the pair will likely continue rising as bulls target the next key resistance level at 1.3100. A drop below the support at 1.2800 will invalidate the bullish outlook.
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