GBP to USD Forecasts: Bears Eye Sub-$1.26 on Hawkish Fed Bets

Highlight

• The GBP to USD saw red this morning as investors responded further to central bank speeches.
• There are no UK economic indicators today to change the narrative, leaving central bank chatter to influence ahead of the US session.
• However, Fed Chair Powell will be speaking today, with US GDP and jobless claims also in focus.

It is another quiet day ahead for the GBP to USD. There are no UK economic indicators for investors to consider today. The lack of stats will leave the GBP to USD in the hands of market sentiment toward the Bank of England monetary policy plans and market risk sentiment.

With no economic indicators to consider until the GDP Report on Friday, the markets need to further digest Bank of England Governor Andrew Bailey and Chief Economist Huw Pill comments from Wednesday.

Speaking at the ECB Central Bank Forum, Governor Bailey had this to say on the BoE surprise 50-basis point rate hike,

“The cumulative data – both particularly on the labour market and on the inflation release we had, which showed to us clear signs of persistence – caused us to conclude that we had to make really quiet a strong move.”

Bailey also stated he favored a 50-basis point interest rate hike over two 25-basis point hikes, suggesting a BoE pause.

Monetary Policy Committee Member Silvana Tenreyro is on the calendar to speak today. Having voted for a hold this month, Tenreyro would need to support a rate hike to move the dial. BoE talk of a post-summer BoE rate hike would stir the pot.

GBP to USD Price Action

This morning, the GBP/USD was down 0.09% to $1.26232. A mixed start to the day saw the GBP to USD rise to an early high of $1.26467 before falling to a low of $1.26204.

Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The GBP/USD sat above the 200-day EMA, currently at $1.25925. The 50-day EMA closed in on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A move through the 100-day ($1.26628) and 50-day ($1.27038) EMAs would support a breakout from R1 ($1.2722) to target R2 ($1.2810). However, a fall through the 200-day EMA ($1.25925) would bring S1 ($1.2577) into view. A move through the 50-day EMA would send a bullish signal.

Resistance & Support Levels

The US Session

Looking at the US session, Q4 GDP and initial jobless claims will need consideration. After Fed Chair Powell’s hawkish comments on Wednesday, sentiment toward Fed monetary policy remained hawkish. Steady jobless claims and an upward revision to GDP estimates would support Fed Chair Powell’s two-rate hike projection.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 81.8% versus 76.9% on Tuesday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 16.4%, up from 15.4% on Tuesday.

Ahead of the US session, Fed Chair Powell will be speaking again. However, the Fed Chair must deviate from previous scripts to move the dial.