Sterling to Retest 1.2200 Ahead of BOE

The pair will likely continue falling as bears target the key support at 1.2200. 

Bearish View

• Sell the GBP/USD pair and set a take-profit at 1.2200.
• Add a stop-loss at 1.2400.
• Timeline: 1-2 days.

Bullish View

• Set a buy-stop at 1.2325 and a take-profit at 1.2450.
• Add a stop-loss at 1.2300.

The GBP/USD pair declined sharply as odds of a more aggressive Federal Reserve continued. The pair crashed to a low of 1.2263, which was the lowest point since May 16th. It has fallen by over 2.8% below its highest point last week.

Fed and BOE Decisions Ahead

The GBP/USD pair declined after the strong US inflation numbers pushed investors to price in a more hawkish Federal Reserve.

According to the Bureau of Labor Statistics (BLS), the country’s inflation surged to 8.6% in May, the highest level since December 1981. The figure was better than the median estimate of 8.1%. At the same time, core inflation rose on a year-on-year basis but dropped for the fourth straight month on a MoM basis.

This will be a big week for the GBP/USD pair as focus shifts to important economic data from the US and the UK and the FOMC and BOE decisions.

On Monday morning, the Office of National Statistics (ONS) will publish the latest GDP numbers. Analysts believe that the country’s economy remained under pressure in April as consumer inflation continued surging.

The ONS will also publish the latest manufacturing, industrial, and construction output numbers. On Tuesday, the agency will release the latest UK jobs numbers. Analysts believe that the country’s unemployment rate declined to 3.7% to 3.6% in April.

The most important events will be the latest Fed and BOE decisions that are scheduled for Wednesday and Thursday, respectively. Analysts believe that the Fed will hike interest rates by 0.50% in its bid to fight inflation. It will also continue with its quantitative tightening (QT) policy.

The BOE is also expected to hike interest rates for the fifth consecutive meeting. The 0.25% hike will push the baseline interest rate to 1.25%.

GBP/USD Forecast

The four-hour chart shows that the GBP/USD pair continued its bearish trend after the strong US inflation data. It fell to a low of 1.2263, which was the lowest point since May 16th. As it dropped, it moved below the lower side of the descending channel shown in black. The pair also retreated below the 23.6% Fibonacci retracement level.

Therefore, the pair will likely continue falling as bears target the key support at 1.2200. This price is about 1.02% below the current level.