The pair will likely keep falling as bears target the second support of the Andrews Pitchfork tool at 1.3485.
Bearish View
- Sell the GBP/USD pair and set a take-profit at 1.3480.
- Add a stop-loss at 1.3625.
- Timeline: 1-2 days.
Bullish View
- Set a buy-stop at 1.3550 and a take-profit at 1.3600.
- Add a stop-loss at 1.3500.
The GBP/USD pair declined slightly after an important warning by the Bank of England’s chief economist. The pair declined to a low of 1.3537, which is slightly below this weeks’ high of 1.3586.
BOE Chief Economist Warning
The Bank of England has become one of the most hawkish central banks in the developed world. It has already hiked interest rates two times in the past three months in its bid to lower inflation. The rate hikes happened also as a response to the strong economic data from the UK. For example, the country’s home prices have jumped while the unemployment rate has declined to about 3.9%.
In a statement on Wednesday, Huw Pill, the BOE’s chief economist warned the bank against raising interest rates aggressively. He advocated for a gradual pace of rate hikes in order to prevent shocks to the economy. He also warned that the market was overestimating the scale of monetary tightening by the bank. Generally, analysts expect that the bank will implement at least three more hikes this year.
In the statement, he said that keeping rates at 0.5% indefinitely will leave inflation above the bank’s target in the medium term. Andrew Bailey, the bank’s governor will deliver a statement later today.
The next key catalyst for the GBP/USD pair will be the upcoming US consumer price index (CPI) data. Analysts expect the data will show that the headline CPI jumped to 7.3% in January as oil and gas prices rose and the supply chain disruption continued.
Excluding the volatile food and energy prices, analysts expect the data to show that prices rose from 5.5% to 5.9%. The GBP/USD will also react mildly to the latest initial jobless claims data from the US.
GBP/USD Forecast
The four-hour chart reveals that the GBP/USD pair declined after the statement by the BOE chief economist. It declined to 1.3530, which was the lowest level since February 8th. It also declined to the 38.2% Fibonacci retracement level.
Additionally, the pair has moved slightly below the 25-day exponential moving average while the Relative Strength Index has retreated. Therefore, the pair will likely keep falling as bears target the second support of the Andrews Pitchfork tool at 1.3485. On the flip side, a move above the key resistance at 1.3600 will invalidate this view.
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