Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2800.
- Add a stop-loss at 1.3025.
- Timeline: 1-2 days.
Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.3015.
- Add a stop-loss at 1.2850.
The GBP/USD exchange rate retreated for two consecutive days after the Bank of England (BoE) and Federal Reserve interest rate decisions. The pair dropped to the psychological point at 1.2900, down from the year-to-date high of 1.3015.
UK inflation data ahead
The GBP/USD pair erased some of the gains made in the past few days as investors reacted to the Fed and BoE decisions. As was expected, the Fed decided to leave interest rates unchanged between 4.25% and 4.50%.
In the press conference, Jerome Powell warned that the US economy was slowing and that the US may be heading towards a stagflation. Stagflation is characterized by high inflation and slow economic growth and is one of the riskiest situations to control. Fed officials pointed to two interest rate cuts this year, defying Donald Trump, who has called for several cuts.
The Bank of England, on the other hand, left interest rates unchanged as it warned of inflation risks in the UK. Eight policymakers voted to maintain rates unchanged, a sign that the bank will maintain them at the current range for a while. Andrew Bailey, the governor, warned that the UK and the global economy were facing major risks because of Trump’s trade wars.
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The upcoming US consumer confidence data will be the next important catalyst for the GBP/USD pair. This is an important figure that looks at the state of the American consumer, the biggest part of the economy.
Economists expect the data to show that consumer confidence dropped in March as concerns about Donald Trump’s tariffs remained.
The other key data will be the UK inflation report, which will come out on Wednesday. With the UK economy deteriorating, a sign that inflation is falling will likely lead to more BoE rate cuts later this year.
GBP/USD technical analysis
The GBP/USD exchange rate peaked at 1.3015 to a low of 1.2915, its lowest level since March 11. It moved slightly below the 61.8% Fibonacci Retracement level. The two lines of the MACD have made a bearish crossover, while the momentum oscillator has dropped modestly in the past few days.
Still, the 50-day and 100-day Exponential Moving Averages (EMA) have formed a bullish crossover, which is a bullish sign. Therefore, the pair will likely drop slightly to the 50% Fibonacci Retracement point at 1.2765. A move above the key resistance at 1.3015 will invalidate the bearish view.
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