GBP to USD Forecasts: Bulls Eye a Return to $1.26 on Fed Bets

It is a quiet Friday for the GBP to USD. There are no UK economic indicators to provide direction. The lack of economic indicators leaves the GBP/USD in the hands of market risk appetite and sentiment toward the UK economic outlook.

Bets on a Bank of England interest rate hike continue to leave a UK recession on the table. Euro area and US economic indicators are beginning to reflect the effects of synchronized interest rate hikes, with economic indicators from China also raising red flags.

The status quo could see the GBP to USD continue to fall short of $1.26. While a hawkish Bank of England monetary policy outlook is GBP to USD price positive, increasing risks of a UK recession would counter any upside.

With no economic indicators or Monetary Policy Committee members on the calendar to speak today, investors should track chatter with the media.

Earlier today, inflation numbers from China drew interest. The annual inflation rate rose from 0.1% to 0.2% in May versus a forecasted 0.4%. Inflation remained soft, with consumer prices falling by 0.2%. In April, consumer prices declined by 0.1%.

However, the Producer Price Index garnered more interest, falling by 4.6% year-over-year versus 3.6% in April. Economists forecast the Producer Price Index to decline by a more modest 2.8%.

GBP to USD Price Action

This morning, the GBP/USD was down 0.10% to $1.25465. A mixed start to the day saw the GBP to USD rise to an early high of $1.25635 before falling to a low of $1.25448.

Technical Indicators

Resistance & Support Levels

The Pound needs to avoid the $1.2517 pivot to target the First Major Resistance Level (R1) at $1.2604. A move through the Thursday high of $1.2561 would signal an extended breakout session. However, the Pound would need market risk sentiment to support a breakout session.

In the event of an extended rally, the GBP/USD would likely test the Second Major Resistance Level (R2) at $1.2648. The Third Major Resistance Level sits at $1.2780.

A fall through the pivot would bring the First Major Support Level (S1) at $1.2472 into play. However, barring a risk-off-fueled sell-off, the GBP/USD should avoid sub-$1.2450 and the Second Major Support Level (S2) at $1.2385. The Third Major Support Level (S3) sits at $1.2254.

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 $1.24529. The 50-day EMA pulled away from the 200-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above S1 ($1.2472) and the 50-day EMA ($1.24529) would support a breakout from R1 ($1.2604) to target R2 ($1.2648). However, a fall through S1 ($1.2472) would bring the 50-day EMA ($1.24529) into view. A fall through the 50-day EMA would send a bearish signal.

The US Session

It is another quiet US session. There are no US economic indicators to shift investor sentiment toward the US economy and Fed monetary policy.

On Thursday, a larger-than-expected rise in US jobless claims sent the GBP/USD to $1.2560 for the first time since May 11. Softer US service sector activity reflected the effects of the Fed’s policy maneuvers to tame inflation.

The latest US Jobs Report and Thursday’s jobless claims showed the first cracks in the US labor market, which could allow the Fed to take a less aggressive interest rate trajectory to bring inflation to target.

According to the CME FedWatch Tool, the probability of a 25-basis point June interest rate hike fell from 33.8% to 27.5% in response to the jobless claims numbers.

Despite the weaker US labor market numbers, UK recession jitters have left the GBP/USD short of $1.26 until now.

No FOMC members are speaking today to guide investors. The Fed entered the blackout period that ends on June 15.