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The pair will likely continue rising as bulls target the next key resistance at 1.2200.
Bullish View
- Set a buy-stop at 1.2085 and a take-profit at 1.2200.
- Add a stop-loss at 1.2000.
- Timeline: 1-2 days.
Bearish View
- Set a sell-stop at 1.1960 and a take-profit at 1.1850.
- Add a stop-loss at 1.2050.
The GBP/USD price held relatively well on Wednesday morning as investors refocused on the upcoming Fed decision and the warning by the IMF about the UK economy. The pair is trading at 1.2034, which is slightly below this week’s high of 1.2085.
UK Economy to Slow
The UK economy is facing significant challenges as consumer and producer inflation rises. According to the IMF, the country’s economy will have the slowest growth among industrialized countries next year. In a report, the organization said that the UK will expand by 3.2% this year and then slow by 0.5% in 2023.
The slowdown will be because of the soaring inflation and interest rates that are expected to squeeze British residents. The US, is expected to grow by 2.3% in 2022 and then expand by 1.0%. Canada is expected to have the fastest economic growth in the same period.
The report comes at a time when Liz Truss and Rishi Sunak are competing to become the next prime minister. Truss believes in cutting taxes for individuals and companies. On the other hand, Sunak has advocated to raise taxes in a bid to reduce the budget deficit.
The GBP/USD pair is holding steady ahead of the upcoming interest rate decision by the Fed. Analysts expect that the bank will hike interest rates by 0.75% to counter the four-decade high inflation. The bank has already hiked interest rates by 150 basis points this year and embarked on a quantitative tightening (QT) policies.
The Fed decision comes at a time when the US economy is showing some signs of a slowdown. For example, retail sales have pulled back while the housing sector is straining. Data published on Tuesday revealed that consumer confidence declined to the lowest level since 2020 while new home sales declined in June.
GBP/USD Forecast
The GBP/USD pair has been more resilient than the EUR/USD in the past few days. The pair has formed an inverted head and shoulders pattern. It has also moved slightly above the 25-day and 50-day moving averages and is above the ascending blue trendline. The Relative Strength Index (RSI) is slightly above the neutral point at 50.
An inverted H&S pattern is usually a bullish sign. Therefore, the pair will likely continue rising as bulls target the next key resistance at 1.2200.
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