GBP to USD Forecasts: Bears Eye Sub-$1.27 on Bailey and Powell

Highlight

• The GBP to USD saw red this morning as investors looked ahead to central bank speeches.
• There are no UK economic indicators today to change the narrative, leaving BoE Governor Andrew Bailey in focus.
• However, Fed Chair Powell will also be speaking today, which could yield a monetary policy divergence trade if the BoE talks about a post-summer pause.

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 the Bank of England and market risk sentiment.

With no economic indicators to consider until the GDP Report on Friday, the markets need the BoE to provide views on the economy, inflation, and the BoE’s post-summer intentions.

Bank of England Governor Andrew Bailey and Chief Economist Huw Pill are on the calendar to speak today. With both speaking at the ECB Central Bank Forum on Central Banking, we expect references to the effects of inflation and interest rates on growth.

Suggestions of the UK economy playing second fiddle to inflation and the need to address wage growth and elevated inflation would raise the chances of a post-summer move. UK wage growth and inflation remain elevated, suggesting more from the BoE.

GBP to USD Price Action

This morning, the GBP/USD was down 0.13% to $1.27314. A mixed start to the day saw the GBP to USD rise to an early high of $1.27519 before falling to a low of $1.27244.

Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The GBP/USD sat above the 50-day EMA, currently at $1.27194. The 50-day EMA pulled further away from the 200-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above the 50-day EMA ($1.27194) would support a breakout from R1 ($1.2771) to target R2 ($1.2793) and $1.28. However, a fall through the 50-day EMA ($1.27194) and S1 ($1.2714) would bring S2 ($1.2680) into view. A fall through the 50-day EMA would send a bearish signal.

 

Resistance & Support Levels

The US Session

Looking toward the US session, there are no US economic indicators to influence. The lack of economic indicators leaves central bankers to move the dial and investors on edge ahead of the Core PCE Price Index and personal spending numbers on Friday.

An unexpected pickup in inflationary pressure, steady labor market conditions, and a rise in personal spending would support a hawkish Fed ahead of the next Jobs Report.

With no stats to consider until Thursday, Fed Chair Powell will garner plenty of interest. The Fed Chair must maintain the two-rate hike outlook to support the greenback.

After the US consumer confidence and core durable goods order numbers, sentiment toward Fed policy moves in July and August remained steady.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 76.9% versus 74.4% on Monday.

Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 15.4%, up from 10.4% on Monday.