GBP to USD Forecast: Sterling Defensive Amidst BoE Rate Hike Uncertainty

Highlights

• GBP to USD sees a decline, ending Thursday at $1.24720 after a mixed trading session.
• Governor Bailey’s remarks put GBP/USD on the back foot, diminishing hopes of BoE rate hikes.
• Market suspense builds around FOMC speeches, with possible hints at another Fed rate hike.

The Thursday Overview

The GBP to USD pair fell by 0.28% on Thursday. Following a 0.45% loss on Wednesday, the GBP/USD ended the day at $1.24720. A mixed session saw the pair rise to a high of $1.25082 before falling to a low of $1.24454.

BoE Governor Bailey Leaves the Pound on the Defensive

Bank of England Governor Bailey comments from Wednesday leave the GBP/USD pair on the defensive. As a result, bets on further BoE rate hikes have subsided, leaving the GBP/USD pair at risk of more losses.

While the GBP/USD pair found support this morning, monetary policy divergence favors the dollar. Economic indicators from the UK and the US have painted different pictures of the respective macroeconomic environments. The UK services sector contracted in August. In contrast, US service sector activity picked up in August.

The Pound has found little support since the Treasury Select Committee hearing. UK house prices fell by 1.9% in August, according to figures out on Thursday. A deteriorating housing sector environment weighs on consumer confidence. Falling consumer confidence affects consumption and adds pressure on the UK economy.

FOMC Member Speeches to Round Off the Week

The market interest in FOMC member speeches has intensified this week. The better-than-expected ISM Non-Manufacturing PMI survey and jobless claims figures refueled bets on a final Fed rate hike. However, investors remain uncertain whether the Fed needs to push rates higher.

The uncertainty leads to greater sensitivity to FOMC member speeches. FOMC voting member Michael Barr is on the calendar to speak today. Support for another Fed rate hike would amplify downward pressure on the GBP/USD pair.

Short-Term Forecast

Economic and monetary policy divergence tilts in favor of the US Dollar. With the UK economy laboring and the BoE projecting a sharp fall in inflation, the Fed remains likely to push rates higher.

GBP to USD Price Action

Daily Chart

The Daily Chart shows the GBP/USD pair below the trend line. The GBP/USD also remains below the 50-day EMA, sending bearish near-term price signals. BoE Governor Bailey comments from Wednesday left the GBP/USD pairing under pressure.

A hold above the 200-day EMA would give the bulls a run at the 50-day EMA and $1.26815 resistance level. However, the GBP/USD pair needs dovish Fed comments to support a breakout. A fall through the 200-day EMA would bring the $1.24410 support level and sub-$1.24 into play.

The 14-Daily RSI reading of 36.03 shows the GBP/USD pair can fall to sub-$1.2450 before hitting oversold territory.

4-Hourly Chart

The GBP/USD remains below the 200-day and 50-day EMAs, reaffirming bearish price near-term signals. A GBP/USD return to $1.2550 would bring the 50-day EMA into play. However, Fed speakers must ease hawkish bets to support a GBP/USD breakout.

Hawkish FOMC member comments would bring the $1.24410 support level into play. However, barring a risk-off session, the GBP/USD pair should avoid sub-$1.24.

The 38.82 14-4-Hourly RSI shows the GBP/USD can test the $1.2441 support level before entering oversold territory.