GBP to USD Forecasts: Bulls Eye a Return to $1.26 on Policy Divergence

It is a quiet Friday session for the GBP/USD, with no UK economic indicators for investors to consider today.

With the UK economic calendar on the light side, the GBP/USD will remain in the hands of market risk sentiment ahead of the US session. Investor sentiment toward central bank monetary policy divergence and the global macroeconomic environment will influence.

Following the sharp decline in bets on a Fed interest rate hike in June and the latest core inflation numbers from the UK, the scales tipped in favor of the Bank of England. However, US economic indicators continue to support a more hawkish Fed despite the signals of a June pause.

Investors should also monitor Bank of England chatter. However, no Monetary Policy Committee members are on the calendar to speak today, leaving commentary with the media to influence.

GBP to USD Price Action

This morning, the GBP/USD was up 0.16% to $1.25440. A mixed start to the day saw the GBP/USD fall to an early low of $1.25189 before rising to a high of $1.25440.

Technical Indicators

Resistance & Support Levels

The Pound needs to avoid the $1.2488 pivot to target the First Major Resistance Level (R1) at $1.2575. A return to $1.2550 would signal an extended breakout session. However, the Pound would need US debt ceiling-related news and US economic indicators 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 $1.2627. The Third Major Resistance Level sits at $1.2766.

A fall through the pivot would bring the First Major Support Level (S1) at $1.2436 into play. However, barring a risk-off-fueled sell-off, the GBP/USD should avoid sub-$1.24 and the Second Major Support Level (S2) at $1.2349. The Third Major Support Level (S3) sits at $1.2210.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The GBP/USD sits above the 100-day EMA, currently at $1.24360. The 50-day EMA closed in on the 200-day EMA, with the 100-day EMA pulling away from the 200-day EMA, delivering bullish signals.

A hold above the EMAs would support a breakout from R1 ($1.2575) to give the bulls a run at R2 ($1.2627). However, a fall through the 100-day EMA ($1.24360), S1 ($1.2436), and 200-day EMA ($1.24348) would bring the 50-day EMA ($1.24221) into view. A fall through the 50-day EMA would send a bearish signal.

The US Session

Looking ahead to the US session, the US Job Report will be in the spotlight. While the markets are betting on the Fed to hit pause in June, a more marked pickup in wage growth and a solid increase in nonfarm payrolls could test the theory.

Bets on a 25-basis point Fed interest rate hike tumbled from 66.6% to 26.4% on Wednesday in response to Fed talk of favoring a June pause.

According to the CME FedWatch Tool, the chances of a 25-basis point interest rate hike fell from 26.4% to 20.4% on Thursday as investors responded to inflation and labor cost numbers.

However, FOMC members and US debt ceiling-related news will also need consideration. Investors await the outcome of a Senate vote on the Debt Limit Suspension Bill.