Sell the GBP/USD pair and set a take-profit at 1.1200.Add a stop-loss at 1.1400.Timeline: 1-2 days.
Set a buy-stop at 1.1370 and a take-profit at 1.1500.Add a stop-loss at 1.1300.
The GBP/USD tumbled to the lowest point in decades after the Fed delivered another hawkish monetary policy decision. The pair crashed to a low of 1.1245 as the US dollar continued its strong rally. Focus now shifts to the upcoming interest rate decision by the Bank of England (BoE).
Fed and BoE interest rate decisions
The GBP/USD price has been in a strong bearish trend in the past few months after the Fed interest rate decision. As was widely expected, the bank decided to continue hiking interest rates in a bid to fight the stubbornly high inflation.
The bank decided to hike interest rate by 0.75% for the third straight month. It pushed rates from 2.50% to 3.50%, the highest it has been in years. As a result, government bond yields continued rising, with the 2-year increase soaring to the highest level in more than a decade.
In a statement, the Federal Reserve hinted that it will continue hiking interest rates in the coming months. Therefore, analysts expect that the bank will hike by 0.50% in the final two meetings of the year. The FOMC statement said:
“The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May.”
The next key catalyst for the GBP/USD pair will be the interest rate decision by the upcoming interest rate decision by the BoE. Like the Fed, analysts expect that the central bank will also continue hiking interest rates.
Economists believe that the bank will hike rates by 50 basis points from 1.75% to 2.25%. It will be the seventh rate hike that the bank has made since December last year.
Still, analysts believe that these hikes could lead to a recession in the UK and the US. Some central banks believe that these hikes are necessary to bring down inflation much lower.
The GBP/USD pair has been in a strong bearish trend in the past few days as the US dollar strength continues. On the four-hour chart, the pair managed below the important support level at 1.1408, which was the lowest level on September 7.
It has moved below the 25-day and 50-day moving averages while the MACD and the Awesome Oscillator moved below the neutral level. Therefore, the outlook of the GBP/USD pair is still to the downside.
The next key support level to watch will be 1.1150. A move above the resistance level at 1.1300 will invalidate the bearish view.