GBP to USD Weekly Forecast: Banking Crisis, the BoE, and Inflation in Focus

It is a busy week for the GBP/USD, with economic indicators from the UK and the Bank of England in focus.

February inflation figures will draw plenty of interest on Wednesday. The markets expect a 25-basis point interest rate hike on Thursday. An unexpected pickup in the annual inflation rate could fuel bets of a hawkish BoE rate hike.

Economists forecast the UK annual inflation rate to soften from 10.1% to 9.8% in February.

The markets should consider the vote count, the BoE Inflation Letter, and the MPC Meeting Minutes. Economists expect seven members of the MPC to vote in favor of a rate hike and two members to vote for rates to remain unchanged.

Following the BoE monetary policy decision, retail sales and private sector PMIs will provide the Pound with direction on Friday. A pickup service sector activity and solid retail sales figures should provide GBP/USD support. However, investors should consider the sub-components of the PMI, with wage growth and output prices in focus.

Following the Bank of England monetary policy decision, investors should also monitor Monetary Policy Committee Member speeches. MPC Member Catherine Mann will draw attention on Friday.

Away from the economic calendar, a deepening banking crisis will influence, however. Updates from Switzerland on UBS AG’s (UBS) progress toward acquiring Credit Suisse Group AG (CS) would ease some market angst, though a deepening banking crisis is a bearish scenario for the GBP/USD pair.

GBP/USD Technical Indicators

The GBP/USD needs to avoid the $1.2131 pivot to target the First Major Resistance Level (R1) at $1.2251. A move through the previous week’s high of $1.22041 would signal a bullish week. However, the UK CPI Report and the BoE would need to support a breakout session ahead of the private sector PMIs and retail sales figures on Friday.

In case of a breakout session, the Pound would likely test resistance at the Second Major Resistance Level (R2) at $1.2324 and resistance at $1.24. The Third Major Resistance Level (R3) sits at $1.2518.

A fall through the pivot would bring the First Major Support Level (S1) at $1.2057 into play. However, barring a risk-off-fueled sell-off, the GBP/USD pair should avoid sub-$1.20 and the Second Major Support Level (S2) at $1.1937.

The Third Major Support Level (S3) sits at $1.1743.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The GBP/USD sits above the 50-day EMA, currently at $1.20753. The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above the 50-day EMA ($1.20753) would support a breakout from R1 ($1.2251) to give the bulls a run at R2 ($1.2324) and $1.24. However, a fall through the 50-day EMA ($1.20753) would bring the Major Support Levels into play.

The US Week Ahead

The Fed will deliver its final interest rate decision of Q1 on Wednesday, with the markets betting on a 25-basis point interest rate hike despite the deepening banking crisis.

A 25-basis point interest rate hike would place the focus on the FOMC projections, rate statement, and Fed Chair Powell press conference. The Fed may talk about pausing rate hikes to assess banking sector contagion risk and could even signal a rate cut later in the year.

On Thursday, jobless claims will draw interest ahead of private sector PMI numbers and core durable goods orders on Friday.

With plenty for the markets to consider this week, investors should also monitor FOMC member chatter.