The pair will likely keep falling as bears target the next key support level at 1.3300.
Bearish View
- Sell the GBP/USD pair and set a take-profit at 1.3300.
- Add a stop-loss at 1.3550.
- Timeline: 2 days.
Bullish View
- Set a buy-stop at 1.3460 and a take-proft at 1.3525.
- Add a stop-loss at 1.3380.
The GBP/USD pair retreated sharply on Thursday morning as investors reflected on the latest interest rate decision by the Fed. The pair has also sold off lately because of the ongoing political crisis in the United Kingdom. It is trading at 1.3442, which is lower than this week’s high of 1.3525.
Fed decision
The main catalyst for the ongoing GBP/USD sell-off is the hawkish statement by the Fed. To a large extent, the Fed did what analysts were expecting. It left interest rates unchanged between 0% and 0.25%, where they have been since the pandemic started.
The Fed also decided to slow its quantitative easing asset purchases for the third straight month. Its goal is to end these asset purchases in its March meeting. It will then start hiking interest rates gradually in a bid to tame inflation.
Therefore, the GBP/USD pair declined because of what the Fed chair, Jerome Powell said during the press conference. Asked about how quickly the Fed was expected to move, he did not rule out an aggressive period of tightening. This means that the bank could implement more than three hikes this year.
Focus now shifts to the Bank of England (BOE), which will hold its monetary policy meeting next week. The bank is expected to maintain a hawkish tone considering that the UK economy is doing relatively well.
Meanwhile, investors are watching the political situation in the UK, where the prime minister is facing challenges. The main concern is that Downing Street held a series of parties at a time when the administration was promoting a lockdown.
As a result, there are questions about whether Boris Johnson will complete his term as PM. His stay will depend on the report by Sue Gray, the Second Permanent Secretary in the Cabinet Office.
GBP/USD Forecast
The four-hour chart shows that the GBP/USD pair had a pullback during the American and Asian sessions. It is trading at 1.3437, which was the lowest level since January 3rd this year. The pair has moved slightly above the 38.2% Fibonacci Retracement level.
It has also dropped below the 25-day and 50-day moving averages while the MACD is below the neutral line. Therefore, the pair will likely keep falling as bears target the next key support level at 1.3300.
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