GBP to USD Forecasts: Bulls Eye $1.27 on UK GDP Report and the FED

It is a busy Wednesday session for the GBP to USD. After Tuesday’s better-than-expected Labour Market Overview Report, the market focus will turn to UK economic growth figures today.

The UK GDP Report for April will garner plenty of interest later this morning. A pickup in economic activity would give the Bank of England more reason to deliver a hawkish rate hike at the next MPC Meeting.

Economists forecast the UK economy to expand by 0.2% in April versus a 0.3% contraction in March. While the GDP numbers will be the focal point, manufacturing production figures will also move the dial. Economists forecast manufacturing production to fall by 0.4% in April versus a 0.7% increase in March.

Other stats in the GDP Report include industrial production and trade data. However, the numbers will likely play second fiddle to the GDP and manufacturing numbers.

Beyond the stats, investors should also consider Bank of England chatter, with comments relating to the UK GDP and Labour Market Overview Reports likely to move the dial. However, no Monetary Policy Committee members are on the calendar to speak, leaving chatter with the media to move the dial.

GBP to USD Price Action

This morning, the GBP/USD was down 0.01% to $1.26096. A mixed start to the day saw the GBP to USD rise to an early high of $1.26173 before easing back.

Technical Indicators

Resistance & Support Levels

The Pound needs to avoid the $1.2579 pivot to target the First Major Resistance Level (R1) at $1.2658. A move through the Tuesday high of $1.26248 would signal an extended breakout session. However, the Pound would need UK and US economic indicators and the Fed to support another breakout session.

In the event of an extended rally, the GBP/USD would likely test the Second Major Resistance Level (R2) at $1.2704. The Third Major Resistance Level sits at $1.2829.

A fall through the pivot would bring the First Major Support Level (S1) at $1.2532 into play. However, barring a Fed-fueled sell-off, the GBP/USD should avoid sub-$1.25 and the Second Major Support Level (S2) at $1.2454. The Third Major Support Level (S3) sits at $1.2328.

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 $1.25134. 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 S1 ($1.2532) and the 50-day EMA ($1.25134) would support a breakout from R1 ($1.2658) to target R2 ($1.2704). However, a fall through S1 ($1.2532) and the 50-day EMA ($1.25134) would bring the 100-day  ($1.24842) and 200-day ($1.24620) EMAs and S2 ($1.2454) into view. A fall through the 50-day EMA would send a bearish signal.

The US Session

Looking ahead to the US session, it is a busy day on the US economic calendar. US wholesale inflation numbers will draw interest ahead of the Fed policy decision.

Softer-than-expected US wholesale inflation numbers should further ease pressure on the Fed to push interest rates higher.

The US CPI Report impacted market sentiment toward Fed interest rates on Tuesday.

According to the CME FedWatch Tool, bets on the Fed hiking rates by 25 basis points in June tumbled in response to the inflation numbers. The probability of a June 25-basis point interest rate hike fell from 20.9% to 4.6%, with the chances of a July 50-basis point interest rate hike falling from 14.0% to 2.9%.

However, the probability of a 25-basis point July hike increased from 59.9% to 60.9%.

While the inflation numbers will draw interest, the FOMC interest rate decision, economic projections, and press conference will be the focal points. A dovish pause would fuel a late GBP/USD rally, with the UK Labour Market Overview Report raising expectations of a hawkish BoE policy move.