GBP/USD Technical Analysis: Planning for New Buying Levels
The GBP/USD currency pair has been exposed to selling operations for four trading sessions in a row, with losses extending to the 1.2284 support level. It had settled around the 1.2320 level at the time of writing the analysis, as markets and investors awaited the reactions of the Federal Reserve Bank of America today and the Bank of England tomorrow Thursday. The former anticipates only a quarter-point increase, while the latter anticipates a half-point increase. The tone of their monetary policy statements will have a strong impact on the currency pair's performance.
The Bank of England is widely expected to raise interest rates by 50 basis points on Thursday, but analysts at one international investment bank predict that the increase will be smaller, causing sterling to weaken.
The Bank of England, for its part, raised interest rates in 2022, and the pound fell following the majority of decisions, confirming a trend that could last until 2023. The sterling's weakness was caused by one of two factors: 1) the bank raised interest rates less than expected, or 2) it met expectations for the size of the increase but provided pessimistic guidance and weak economic forecasts.
The International Commercial Bank anticipates that the bank will want to slow down to consider the impact of previous increases on mortgages, especially since a large number of fixed-rate mortgages are about to expire. "In addition, there is a very good chance that the bank will revise its long-term inflation expectations lower," the analyst added.
The pound/euro has begun the new week under pressure at 1.1370, and the Bank of England's decision and guidance will clash with that of the European Central Bank, which is also expected to deliver a 50 basis point hike on Thursday. Meanwhile, the pound-to-dollar exchange rate GBPUSD is at odds with the Federal Reserve's decision tonight, which is expected to be a 25 basis point lower hike.
As a result, the pound's future outlook will be determined this week by the decisions of at least three central banks.
The three risks are delivering on the interest rate front as expected for sterling, but the Bank of England is distancing itself with more pessimistic guidance on the outlook. The bank is likely to raise its economic forecast for 2022, but the outlook after that is likely to remain bleak.
"We will look at the possibility of an avalanche of real economy data and a possible delay in the consumer price index, starting from the second quarter of 2024 onwards, where it is likely to maintain a strong crack in policy through the Monetary Policy Committee," says Jeremy Stretch, forex currency analyst at CIBC. And CIBC anticipates another three-way split in the bank's monetary policy committee vote, resulting in a 25 basis point increase rather than the 50 basis point increase that analysts and the market had anticipated.
Today's Sterling vs. Dollar Expectations:
According to the trades on the chart for today's time frame, the most recent selling operations did not result in a bearish shift in the general direction of the sterling pair against the US dollar GBP/USD.
This will not happen unless we move towards support levels 1.2210 and 1.2120, respectively, and the last level is critical to expect psychological support 1.2000 as an important stage for the transformation.
On the other hand, if the dollar falls and the pound suffers a blow from the Bank of England's signals, bulls may see a good opportunity to return to the 1.2410 and 1.2530 resistance levels, respectively.