GBP/USD Price Forecast: BoE & Fed Rate Decision in Highlights
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- Office for National Statistics reported the gross domestic product, which dropped to 0.1% against the projected 0.4%.
- Federal Reserve is likely to keep in interest rate unchanged at 0.25%. Therefore, the focus will switch to the FOMC Press Conference.
- GBP/USD must remain below 1.3290 to have a chance of developing downward momentum in the near term.
The GBP/USD price forecast remains bullish above the $1.3190 level. The day before, GBP/USD closed at $1.3272 after hitting a high of $1.3277 and a low of $1.3187. GBP/USD extended its gains and surged for another session on Friday, recovering most of this week’s losses.
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A weaker greenback underpins GBP/USD.
The GBP/USD dropped to its one-year lowest level this week but managed to recover some of its losses and turned green. It’s mainly because of the US dollar’s weakness, which remained low for the week. The US Dollar Index broke its six-week streak and dropped this week, despite the strong jobless claims and the CPI report. Lastly, the dollar was firm against its rival currencies during the previous weeks.
Covid19 concerns: the Omicron variant underpins the GBP/USD
The signs of the fast-spreading Omicron variant first emerged in South Africa, causing panic in the market. The initial reaction amid fear of lockdown and its impact on economic recovery increased the safe-haven dollar. This week, the report from Pfizer and BioNTech suggested that booster shots of their coronavirus vaccine could provide significant efficacy against Omicron. Thus, it eased market fears and pulled out the demand for safe-haven US dollars. Consequently, it dragged the DXY to the downside, pushing GBP/USD to the upside.
Fears of stricter restrictions before Christmas weighed
The pressure on hospitals grew after the number of coronavirus cases increased in the region. Fears of tighter restrictions before Christmas weighed on the British Pound, limiting gains in GBP/USD.This week, the UK saw about a 15% rise in coronavirus cases after 58194 cases were reported. Since January, the daily cases have reached their highest level as the vaccines have proved to be less effective against the Omicron variant. These rising tensions prompted PM Boris Johnson to announce Plan B for COVID-restriction to be placed on the country.
Stronger US CPI (Consumer Price Index) weights on GBP/USD
On Friday, the Bureau of Labor Statistics released the US inflation figures. The inflation report from the world’s largest economy showed that inflation hit 0.8% in November, overshadowing the expected 0.7%.
The continuous rise in inflation strengthened the market’s expectations of an interest rate hike. Therefore, investors can expect a rate hike in the upcoming Fed monetary policy meetings. However, before this report, the cautious behavior of investors kept the market lower for the greenback this week as all eyes were on the CPI report.
Weaker UK GDP figures to weigh on GBP/USD
Sterling was also under pressure due to an unfavorable GDP report in October. The Office for National Statistics reported the gross domestic product, which dropped to 0.1% against the projected 0.4%. In October, it showed a contraction in the economy, negatively impacting the local currency. Apart from this, no highly influenced data report was released from the UK this week.
On the Brexit front, the UK and EU were increasing their efforts to resolve post-Brexit conflicts over the Northern Ireland Protocol before Christmas after negotiations failed to reach an agreement once again. Talks are expected to continue next week between EU and UK negotiators. If the tension continues, then GBP could face selling pressure, and if they reach an agreement, then GBP would see heavy bullish pressure.
Next week, the CPI report from Britain and the Manufacturing and Services PMI reports will be released and will probably significantly impact GBP. The GBP currency will also have a high impact on retail sales, the unemployment rate, and claimant count change next week.
Economic events ahead
On the US front, the focus of market participants will remain on the release of the PPI report, retail sales report, manufacturing and services PMI report, and unemployment claims report. Furthermore, the Federal Reserve will also hold its last monetary policy meeting next Thursday, which will have a high impact on the US dollar.
Bank of England (BoE) monetary policy decision
For months, traders have debated when the Bank of England will boost interest rates. Policymakers, notably Governor Bailey, touted this promise at first but then failed to deliver when the time came. The development of Omicron and recent UK actions nearly guarantee that the bank will keep its powder dry this time as well.
Even Michael Saunders, who voted for a raise last month, has stated that he needs more information on the new variant before deciding. However, when hawks become cautious, it is usually a strong signal.
Markets have correspondingly factored in the possibility of any action on Thursday, with only a 25% chance of a rate hike. However, if the policy remains intact, the pound faces some downside risks, especially if it is done unanimously.
Beyond the initial reaction, sterling’s fortunes will be determined by what the Bank of England says about future hikes, as investors anticipate nearly four of the following year. That appears to be a bit of a stretch. The British economy is solid, but not exceptionally so.
Federal Reserve (Fed) monetary policy decision
The American economy is doing well. Consumption is rising, the labor market is tight by numerous metrics, inflation is skyrocketing, and the Atlanta Fed GDPNow model predicts 8.7 percent growth in the fourth quarter. As a result, the Fed has begun to shift away from the emergency programs imposed last year.
It has previously promised a gradual reduction in asset purchases, but numerous policymakers want to accelerate this process in light of recent impressive data. A faster conclusion would give the option of raising interest rates sooner to combat inflation.
Federal Reserve is likely to keep in interest rate unchanged at 0.25%; therefore, the focus will switch to FOMC Press Conference.
GBP/USD price forecast – Daily technical levels
Support Resistance
1.3184 1.3238
1.3151 1.3257
1.3131 1.3291
Pivot Point: 1.3204
GBP/USD price forecast: Downward Channel to extend resistance at $1.3290
The GBP/USD price forecast is pushing to break over the resistance mark of 1.3290. A spike in buying pressure can slice through the 1.3290 hurdles, and the price can move to the next resistance level at 1.3345. A break over 1.3370 will open the door for a test of the next resistance mark at 1.3370. Further upward breakout can extend buying trend until 1.3370 next resistance level.
The leading technical tools like RSI and Stochastic RSI are holding above 50, demonstrating an uptrend in GBP/USD, while the 200 days exponential moving average is holding at 1.3450, demonstrating a selling bias.
GBP/USD must remain below 1.3290 to have a chance of developing downward momentum in the near term. The next level of support for GBP/USD is at a double bottom level of 1.3190. A breakout below the support level at 1.3212 will open the door for the further selling trend until at 1.3150.
What’s next?
Typically, a descending channel has a high tendency to exhibit a downtrend. Therefore, a break below the 1.3190 level can help us capture a sell trade until the next support level of 1.3151 or 1.3125. Alternatively, the quick buy trade can be placed over 1.3290 to target 1.3345 and 1.3370. Good luck, and stay tuned for more updates!
