The GBP/USD exchange rate moved sideways this week as traders reflected on the latest actions by the Federal Reserve and Bank of England (BoE). The pair remained stuck at 1.2212, where it has been in the past few days. This price is about 7% below the highest point this year.
BoE and Fed decisionsThe two biggest forex news of the week were the FOMC and BoE rate decisions. As was widely expected, the two central banks decided to leave rates unchanged. The Fed left US rates intact between 5.25% and 5.50%.
In his speech, Jerome Powell tried to balance his statement about future hikes. He believes that the incoming data like jobs and inflation will be important in determining whether to hike or pause.
The market reaction implied that investors believe that the bank is done with hikes. For example, the US dollar index (DXY) retreated while American stocks and bonds soared. The Dow Jones index jumped by over 500 points on Thursday while bond yields slipped to the lowest point since mid-October.
The Bank of England was more vague, which explains why market participants have a mixed opinions about what to expect. Analysts at Deutsche Bank believe that the BoE rate hikes have peaked. On the other hand, those at Goldman Sachs said:
“A flatter peak in the rate path comes with a risk that more tightening could be required if the disinflation process stalls, especially given that the labour market remains tight. At the same time, there are risks of earlier cuts.”
Looking ahead, the next important catalyst for the GBP/USD pair will be the upcoming US non-farm payrolls (NFP) data. Economists polled by Reuters believe that the economy added 150k jobs while the unemployment rate remained at 3.8%.
GBP/USD technical analysis
The daily chart shows that the GBP/USD exchange rate has moved sideways in the past few weeks. Most recently, it has formed a small triangle pattern. It also remains below the 50-day and 100-day Weighted Moving Averages (WMA).
At the same time, the Relative Strength Index (RSI) and the Stochastic Oscillator have pointed upwards. Therefore, the outlook for the pair is still bearish, with the initial target being at 1.2030, the lowest point on October 4th.
The alternative scenario is where the pair rebounds and retests the psychological level at 1.2500.
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