GBP to USD Forecasts: Bulls Eye $1.29 on a Surprise BoE Rate Hike

It is a big day ahead for the GBP to USD. While there are no UK economic indicators to consider, the Bank of England will deliver its pre-summer break monetary policy decision.

Economists forecast a 7:2 split in favor of a 25-basis point interest rate hike. However, wage growth and headline inflation figures suggest the need for more aggressive moves to bring inflation to target.

In May, the UK annual inflation rate held steady at 8.7% despite the BoE lifting rates by 4.4% since December 2021. However, wage growth accelerated in April, suggesting inflationary pressures will likely persist over the near term.

A 25-basis point interest rate hike would shift the market focus to the BoE Inflation Letter and the monetary policy meeting minutes. The BoE doves may feel relief that they have the summer to monitor inflation-related indicators before returning to the table in August.

However, on the flip side, the BoE hawks may prefer to deliver a 50 basis-point move before the summer pause, leaving the GBP to USD exposed to a surprise move.

With the Bank of England in the spotlight, investors should track Bank of England commentary. However, no Monetary Policy Committee members 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 flat at $1.27686. A range-bound start to the day saw the GBP to USD fall to an early low of $1.27573 before rising to a high of $1.27736.

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 $1.27029. 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 S1 ($1.2706) and the 50-day EMA ($1.27029) would support a breakout from R1 ($1.2817) to target R2 ($1.2865) and $1.29. A surprise 50-basis point rate hike would put $1.29 on the table. However, a fall through S1 ($1.2706) and the 50-day EMA ($1.27029) would bring S2 ($1.2643) into view. A fall through the 50-day EMA would send a bearish signal.

Resistance & Support Levels

The US Session

Looking ahead to the US session, it is a busier day on the US economic calendar. US jobless claims and existing home sale numbers will be in focus.

The jobless claims will have more influence, with the US labor market a consideration for the Fed. An unexpected jump in jobless claims would support the Fed doves and an extended pause on monetary policy moves.

While the numbers will draw interest, we expect Fed chatter to have more influence. Fed Chair Powell will give the second day of testimony on Capitol Hill. However, barring a deviation from the Wednesday script, FOMC member commentary will likely garner more interest.

FOMC members Waller, Bowman, and Mester are on the calendar to speak today.

After Fed Chair Powell’s first day of testimony and mixed signals from FOMC members, bets on a July rate hike eased, albeit marginally.

According to the CME FedWatch Tool, the probability of a 25-basis point July rate hike stood at 71.9% on Wednesday versus 76.9% on Monday. The chances of the Fed lifting the Fed Funds Rate to 5.75% in September decreased from 12.3% to 10.1%.