GBP/USD Daily Forecast – Sterling Declines Four Straight Sessions but Holds Above 1.3000

GBP/USD has been steadily declining since Friday’s UK PMI data but started seeing buyers yesterday after briefly dipping below 1.3000.
Jignesh Davda

Sterling bulls were optimistic last week after the UK jobs report came in better than expected but much of last week’s gain has been wiped out as this point.

Last week’s jobs report altered expectations for the Bank of England meeting which takes place on Friday where there is still a large amount of uncertainty whether a rate cut will come out of it.

This uncertainty, combined with a continued rise in the dollar, has weighed on GBP/USD, leading to a brief drop below 1.3000. Buyers promptly stepped in following the dip below the psychological level yesterday and the downside momentum has subsided somewhat today.

Ultimately, the bank decision will pave the way for the pound to dollar exchange rate. The currency pair has been hovering around a major support level at 1.2960 over the past few weeks, and a rate cut might just provide the catalyst for a downside break.

On the other hand, if policymakers see downside risks abating as a result of the recent jobs report, Sterling stands to continue the upward momentum seen last week.

On a separate note, Nationwide reported a 1.9% annual rise in house prices, up from 1.4%. Compared to the prior month, house prices increased half a percent in December. The data, while positive, will not play a large role in the Bank of England’s decision on Friday.

Technical Analysis

GBP/USD broker higher from a declining trend channel last week to set a positive tone. However, the decline in the early week certainly does not reinforce a strong bullish view.

The pair closer resembles a range rather than a bullish breakout ahead of Friday’s BoE meeting.

GBPUSD Daily Chart

Some volatility might be seen later today as the Federal Reserve is scheduled to deliver its latest rate decision. Most analysts are not expecting a lot of volatility as the Fed is largely expected to remain on hold.

The dip below 1.3000 was brief and a long tail candlestick on a daily chart from yesterday points to demand near the level. GBP/USD is in a good position for a bounce, but a likely scenario might be a decline in volatility ahead of the BoE and for a potential range to form.

Bottom Line

  • The GBP/USD daily chart shows buyers are ready to defend dips below 1.3000.
  • The Federal Reserve meets later today but investors are more likely to react to Friday’s Bank of England meeting as the Fed is expected to remain on hold.
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