GBP/USD Forex Signal: Still Under Pressure of Dovish BoE Forecast
Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2200.
- Add a stop-loss at 1.2450.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2410 and stop-loss at 1.2525.
- Add a stop-loss at 1.2325.
The GBP/USD exchange rate recovered most of the losses it suffered on Wednesday, despite rising expectations that the Bank of England (BoE) may cut interest rates later this year. After falling to a weekly low of 1.2263 during the UK session, it climbed to 1.2400 during the American session.
Rate cuts by the Bank of England are becoming more popular
The GBP/USD exchange rate climbed marginally after futures data revealed that the Bank of England will need to decrease interest rates in the fourth quarter. According to interest rate swap statistics, investors expect the bank to raise rates by 50 basis points in February, followed by 0.25% in March. This pattern will continue until the Fed decreases interest rates in the final three meetings of the year.
This view is bolstered by the fact that the British economy is failing and may remain in recession for some time. On Wednesday, statistics indicated that factory price inflation had fallen to its lowest level in over a year, while flash manufacturing and services PMIs remained in the negative territory.
As a result, with inflation decreasing, many believe the BoE has the incentive to reduce rates to avoid a painful landing.
The fourth-quarter US GDP report will be the significant factor influencing the GBP/USD. Economists predict the economy will rise by 2.6% in the fourth quarter, following a 3.2% increase in the previous quarter. They also expect the GDP price index to decline from 4.4% to 3.3% in the same period.
These figures are significant since they will represent the initial estimations. Stronger-than-expected data will allow the Fed to continue its hawkish stance at its meeting next week. The latest durable goods order data, first unemployment claims, and new home sales will also be released in the United States.
Forecast for the GBP/USD
After forming a series of bearish patterns, the GBP/USD made a negative breakthrough this week. On January 23rd, for example, it formed a shooting star pattern. This is one of the most reliable bearish candlestick patterns in the market. It also produced a double-top pattern, the upper side of which was at 1.2445. In addition, a rising wedge developed.
As a result, the present rally is most likely part of the break and retest pattern, which is typically indicative of a bearish continuation. If it succeeds, the psychological level of 1.2200 will be important to monitor.