GBP to USD Forecasts: Bulls Target $1.27 on a Hawkish BoE

It is a big day ahead for the GBP/USD. There are no UK economic indicators to consider. However, the Bank of England will deliver its monetary policy decision this afternoon.

The markets are betting on a 25-basis point interest rate hike to 4.50%, with a vote split 7-2 in favor of a move.

A forecasted 25-basis point interest rate hike and a 7-2 split would shift the market focus to the Bank of England Monetary Policy Report, MPC meeting minutes, and Bank of England Governor Andrew Bailey’s post-announcement comments.

UK inflation stood a 10.1% in April. With the UK economy showing resilience going into Q2, further BoE interest rate hikes could be on the horizon. However, further tightening would put the UK economy at risk of a deep recession.

Governor Bailey’s outlook on the economy, inflation, and monetary policy will remain the key as the markets ease bets on a Fed interest rate cut in 2023.

With the Bank of Monetary Policy Committee delivering its monetary policy decision this afternoon, no 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 down 0.08% to $1.26153. A mixed start to the day saw the GBP/USD rise to an early high of $1.26408 before falling to a low of $1.26133.

Technical Indicators

Resistance & Support Levels

The Pound needs to move through the $1.2636 pivot to target the First Major Resistance Level (R1) at $1.26469 and the Wednesday high of $1.26798. A return to $1.2650 would signal an extended breakout session. However, the Pound would need a hawkish BoE to support a breakout session.

In the event of an extended rally, the GBP/USD would likely test the Second Major Resistance Level (R3) at $1.2713. The Third Major Resistance Level sits at $1.2791.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.2592 in play. However, barring a BoE-fueled sell-off, the GBP/USD should avoid sub-$1.2550. The Second Major Support Level (S2) at $1.2558 should limit the downside. The Third Major Support Level (S3) sits at $1.2480.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The GBP/USD sits above the 50-day EMA, currently at $1.25810. The 50-day EMA pulled further away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above S1 ($1.2592) and the 50-day EMA ($1.25810) would support a breakout from R1 ($1.2669) to give the bulls a run at R2 ($1.2713). However, a fall through S1 ($1.2592) and the 50-day EMA ($1.25810) would bring S2 ($1.2558) 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 initial jobless claims and wholesale inflation numbers will be in focus.

Following the US CPI Report, softer wholesale inflation numbers and rising jobless claims would further ease the pressure off the Fed and support riskier assets. However, a hawkish BoE, softer US inflation, and rising jobless claims would be a boon for the GBP/USD.

Economists forecast initial jobless claims to increase from 242k to 245k and for the producer price index to increase 2.4% year-over-year in April versus 2.7% in March.

With inflation and the labor market in focus, we expect FOMC member commentary to also influence. FOMC member Christopher Waller is on the calendar to speak later today.

Beyond the economic calendar, the banking sector, the US debt ceiling, and corporate earnings also need consideration.