GBP/USD Price Forecast: Why 1.3550 is Crucial for Bulls?

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  • Retail sales from January surged to 1.9% against the forecasted 1.1% and supported the British Pound.
  • British Pound remained resilient to the Russia-Ukraine crisis that dominated all week.
  • GBP/USD soared to place a high of 1.3641 level amid weakness in the dollar.

The GBP/USD price forecast remains bullish, as the 50 EMA is extending strong support to the direct currency pair. The GBP/USD ended the day at $1.3586, with a high of $1.3644 and a low of $1.3572. After rising for three consecutive sessions, GBP/USD dropped on Friday. The pair reversed its course amid the strength of the US dollar. The DXY (US Dollar Index) extended its gains and reached a 96.17 level. It weighed on the currency pair GBP/USD.

Russia-Ukraine conflict in Play

The currency pair remained green for the third consecutive week as the British Pound remained resilient to the Russia-Ukraine crisis that dominated all week. The rising risk sentiment in the market due to increased hopes for a de-escalation of geopolitical tensions added to the riskier currency GBP. Sterling gathered strength after hopes grew that US and Russian officials would have talks to end the Russia-Ukraine conflict. The strong GBP then kept the currency pair GBP/USD on the green side for the week.

BoE Rate Hike Sentiment Underpins GBP/USD

Another thing that kept Sterling strong throughout the week was the increased expectations of an aggressive rate hike from the Bank of England.  That especially after the UK annualized inflation rate hit a fresh 30-year high on Wednesday. It arrived at 5.5%, against the expected 5.4%.

GBP/USD Fundamentals Analysis

On the data front, at 12:00 GMT, the retail sales from January surged to 1.9% against the forecasted 1.1% and supported the British Pound. It capitulated further losses in GBP/USD.

At 20:00 GMT, existing home sales had risen to 6.50 million, up from 6.10 million predicted, bolstering the US dollar. The CB Leading Index dropped to -0.3% against the projected 0.2% and weighed the US dollar. The mixed data for the US side kept the losses in GBP/USD checked on Friday.

John Williams Dovish Stance Push GBP/USD Higher

On Friday, New York Federal Reserve Bank President John Williams argued against taking a big step toward raising interest rates right away. He said there was little need for the central bank to kick off its interest rate hiking cycle with a big move. He further advised taking a steady approach while increasing interest rates and adjusting the pace if needed.

Furthermore, considering economic conditions, the policymakers could accelerate or slow the pace of future rate hikes. He suggested that a sensible route to increasing rates would be to keep them in the range of 2% to 2.5% by the end of next year.

President Loretta Mester Spread Hawkish Sentiment

Cleveland Fed President Loretta Mester said that the central bank would need to move more aggressively. It’s necessary to remove accommodation than it did following the Great Recession by raising interest rates faster and shrinking balance sheets more quickly. She expected inflation to remain above 2% by the end of this year and in 2023, so it was necessary to take aggressive steps.

The officials of the Federal Reserve are debating how to quickly raise interest rates to combat the highest inflation seen in decades. All these debates are happening because the Fed will hike interest rates at its March 15–15 policy meeting. After all, inflationary pressures considered temporary in the beginning have broadened throughout the economy and have started influencing business investment and wage decisions.

The Federal Reserve Board Governor Lael Brainard laid out a case for the role a US central bank digital currency could play in bolstering financial stability. As the use of stablecoins and cryptocurrency grows, other countries issue their own CBDCs. All these debates over inflation and rate hike decisions by Fed officials kept the US dollar supported and weighed on the currency pair GBP/USD on Friday.

GBP/USD Price Forecast – Daily Technical Levels

Support Resistance
1.3566 1.3651
1.3518 1.3688
1.3482 1.3736
Pivot Point: 1.3603

GBP/USD 4-Hour Chart - Uptrend Trendline Support
GBP/USD 4-Hour Chart – Uptrend Trendline Support

GBP/USD Price Forecast – Technical Outlook

The GBP/USD soared to place a high of 1.3641 level, and the closing of candles under these levels triggered a slight correction. The drop, however, was halted at the 50 days exponential moving average at 1.3550 level.

The GBP/USD rose toward the critical 1.3640 resistance level early Friday. However, this level remained unchanged, causing the pair to fall to 1.3600. Meanwhile, the four-hour chart’s Relative Strength Index (RSI) indicator is approaching 70. It’s indicating that the pair is on the verge of becoming technically overbought.

A surge in GBP/USD demand can cause a breakout of 1.3640 and lead the pair towards 1.3660 resistance. Further on the higher side, psychological level 1.3700 may act as a major resistance.

On the downside, 1.3600 (psychological level) could be tested with a technical correction. If that support fails, further losses are possible toward 1.3560 (200-period SMA) and 1.3530 (100-period SMA).

Good luck, and stay tuned for more updates!

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