Further Downside Ahead of Fed and BOE

The pair will likely keep falling as investors target last month’s low of 1.2410. It will then bounce back after the BOE decision.

Bearish View

• Sell the GBP/USD pair and set a sell-stop at 1.2410.
• Add a stop-loss at 1.2700.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 1.2580 and a take-profit at 1.2700.
• Add a stop-loss at 1.2500.

The GBP/USD pair retreated slightly on Tuesday morning as investors refocused on the upcoming interest rate decisions by the Federal Reserve and the Bank of England (BOE). The pair dropped to a low of 1.2500, which is slightly below last Friday’s high of 1.2613.

Monetary Policy Decisions

The key drivers for the GBP/USD price will be the upcoming interest rate decisions by the Fed and the BOE. The Fed will start its difficult meeting on Tuesday and then deliver the decision on Wednesday.

Based by the recent trends in inflation and statements by Fed officials, analysts believe that the bank will accelerate its tightening pace. This tightening will include a 0.50% rate hike and possibly a $75 billion quantitative tightening policy.

Still, the bank is in a tough spot considering that economic data is painting a different picture about the economy. For one, its modest 0.25% rate hike in March has already pushed mortgage rates to the highest level in years. As a result, the housing market could see some weakness, which will weigh on the economy.

While inflation remains at elevated levels, there are signs that consumer prices are easing slightly. Further, data published last week revealed that the American economy declined in the first quarter. Pending home sales also dropped for the fifth straight month. And on Monday, data by both Markit and IHS revealed that the manufacturing sector was going struggling.

Meanwhile, the BOE will start its meeting on Wednesday and publish its decision on Thursday. Economists expect that the bank will deliver another 25 basis point hike and push them to 1.0%. If they are correct, it will be the fourth hike since December last year.

Therefore, while there will be some important data from the US and UK today, their impact on the GBP/USD pair will be relatively mild.

GBP/USD Forecast

The GBP/USD had a difficult performance in April as the strength of the US dollar continued. The pair attempted to recover on Friday but it found a strong resistance at 1.2615. It has now pulled back and moved slightly below the 25-day and 50-day exponential moving averages (EMA). The Stochastic Oscillator moved from the overbought level.

Therefore, the pair will likely keep falling as investors target last month’s low of 1.2410. It will then bounce back after the BOE decision.