GBP to USD Forecast: Pound Awaits Bailey’s Take Amid US Inflation Concerns

Highlights

• GBP/USD slid by 1.13% on Thursday, reversing a gain of 0.22% on Wednesday, closing at $1.21741.
• BoE Governor Andrew Bailey set to address the 2023 Institute of Int’l Finance Annual Meet.
• US Consumer Sentiment Report in focus; could influence the Fed rate path.

Overview of the Thursday Session

On Thursday, the GBP/USD slid by 1.13%. Reversing a gain of 0.22% from Wednesday, the GBP/USD pair ended the day at $1.21741. The GBP to USD pair rose to a high of $1.23316 before falling to a low of $1.21713.

Bank of England Governor Andrew Bailey in the Spotlight

Bank of England (BoE) Governor Andrew Bailey will garner investor interest on Friday. The BoE Governor will speak at the 2023 Institute of International Finance Annual Membership Meeting.

Following lackluster UK GDP numbers for August, uncertainty remains about BoE interest rate intentions. Hawkish comments relating to the economic outlook and monetary policy will likely support the buying appetite for the Pound.

On Monday, Monetary Policy Committee member Catherine Mann called for more aggressive policy measures to tackle inflation.

Bank of England Chief Economist Huw Pill spoke about monetary policy decisions being finely balanced on Thursday. The BoE Chief Economist reportedly said,

“We have done a lot over the last two years. A lot of that policy is still to come through.”

Huw Pill added,

“Whether we’ve done enough – or whether we have more to do – I think is becoming a more finely balanced issue. But we will do what we need to do in order to have inflation at 2% on a lasting basis.”

US Consumer Sentiment and Fed Speeches in Focus

Later today, the Michigan Consumer Sentiment Report will garner investor interest. The US CPI Report fueled bets on a Fed rate hike. A pickup in US consumer sentiment would support a more hawkish Fed rate path.

An uptrend in consumer sentiment would signal a positive consumption outlook. Higher consumer spending would fuel demand-driven inflation, forcing the Fed to push rates higher to curb spending.

A more aggressive Fed rate path would affect borrowing costs and wage growth. The net effect would be a pullback on consumer spending, easing demand-driven inflationary pressures.

Beyond the numbers, investors must monitor FOMC member commentary throughout the session. FOMC member Patrick Harker is on the economic calendar to speak today. A hawkish reaction to the US CPI Report would pressure the GBP to USD pair.

However, investors must monitor news updates from the Middle East. An escalation in the conflict would fuel a flight to the safety of the US dollar.

Short-Term Forecast

The near-term trend for the GBP to USD pair hinges on central bank forward guidance. Elevated inflation leaves interest rate hikes on the table for the Fed and the BoE. However, the US macroeconomic environment suggests the Fed may be more likely to push rates higher.

GBP to USD Price Action

Daily Chart

The GBP/USD pair remained below the 50-day and 200-day EMAs, sending bearish price signals.

Hawkish Fed comments and a pickup in US consumer sentiment would support a GBP to USD fall below $1.21500. A drop below $1.21500 would bring the $1.19055 support level into view.

However, weaker-than-expected US consumer sentiment figures and dovish Fed commentary would support a break above the $1.22150 resistance level. A break above the resistance level would bring the 50-day EMA into view. Comments from BoE Governor Andrew Bailey may prove pivotal.

The 14-period daily RSI reading of 40.51 supports a GBP/USD drop below $1.21500 before entering oversold territory.

4-Hourly Chart

The GBP/USD sits below the 50-day and the 200-day EMAs, reaffirming bearish price signals.

A GBP/USD break above the $1.22150 resistance level and 50-day EMA would support a move toward the 200-day EMA.

However, a fall to $1.21500 would bring sub-$1.21 and the $1.19055 support level into play.

With an RSI reading of 41.58 for the 14-period 4-hourly Chart, the GBP/USD could fall to $1.21500 before entering oversold territory.