GBP to USD Forecasts: Recession Fear to Test the Bull Run at $1.2750

Highlight

• The GBP to USD was flat this morning at $1.26910.
• It is a quiet day on the economic calendar, with no UK economic indicators to draw interest.
• Risk-off sentiment from the Asian session weighed as investors fret over central bank efforts to tame inflation.

It is a quiet day ahead for the GBP to USD. There are no UK economic indicators to provide direction today.

The lack of economic indicators will leave the GBP to USD in the hands of market risk sentiment. Weaker economic indicators from China, Europe, and the US reignited recession fears as central banks remain committed to tame inflation.

Hawkish bets on the next Bank of England monetary policy decision put the UK economy at risk. Notably, UK economic growth in Q1 provides the BoE little wriggle room to avert an economic downturn on further interest rate hikes.

With no economic indicators to consider, investors should consider Bank of England chatter. However, no MPC members are on the calendar to speak today, leaving commentary with the media to move the dial.

The US Session

It is a quiet day on the US economic calendar, with the US markets closed for the Fourth of July holiday.

ISM Manufacturing PMI numbers from Monday eased bets on a September Fed rate hike but left the Fed on target for a 25-basis point move later this month. Significantly, there are no bets on a Fed rate cut until December, contributing to the recessionary jitters.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 89.9% versus 87.4% on Monday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 19.8%, down from 21.5% on Monday.

GBP to USD Price Action

This morning, the GBP to USD was flat at $1.26809. A mixed start to the day saw the GBP to USD rise to an early high of $1.27017 before falling to a low of $1.26809.

Daily Chart

The Daily Chart showed a GBP TO USD breakout from the psychological $1.2650 support level as the markets responded to the latest US economic indicators. Looking at the EMAs, the GBP TO USD sat above the 50-day ($1.25608) and 200-day ($1.23319) EMAs, signaling bullish momentum over the near and long term.

Notably, the 50-day EMA continued to pull away from the 200-day EMA and reflected a bullish trend.

Looking at the 14-Daily RSI, the 55.56 reading signals a moderately bullish trend, aligned with the 50-day and 200-day EMAs. Avoiding sub-$1.2650 would support a move through the lower level ($1.2700) of the $1.2700 – $1.2750 resistance band to target $1.2750.

4-Hourly Chart

Looking at the 4-Hourly Chart, the GBP TO USD faces strong resistance at the $1.27 psychological level. Despite a choppy start to the week, the GBP TO USD sits above the 50-day ($1.26867) and 200-day ($1.26047) EMAs, sending bullish signals. Significantly, the 50-day EMA pulled away from the 200-day EMA, signaling another run at the upper level ($1.2750) of the resistance range of $1.2700 – $1.2750.

The GBP TO USD must hold above the 50-day EMAs to target last week’s high of $1.27594 (Tues).

The 14-4H RSI reading of 51.42 indicates a moderately bullish stance, with buying pressure outweighing selling pressure. An upward trend would align the RSI with the EMAs and signal a possible breakout from the current resistance range of $1.2700 – $1.2750.