GBP/USD Daily Forecast – U.S. Dollar Boosted By Fed’s Grim Forecast

GBP/USD Video 11.06.20.

British Pound Loses Ground As Demand For Riskier Assets Declines

GBP/USD is losing ground as the U.S. dollar rebounds against a broad basket of currencies after yesterday’s commentary from the Fed Chair Jerome Powell.

The U.S. Dollar Index, which has briefly visitied sub-96 territory right after the announcement of the Fed Interest Rate Decision, is back above 96 and tries to get closer to 96.5.

The Fed left the interest rate unchanged and signaled that the rate will stay at current levels through 2022. In addition, the Fed plans to continue its asset purchases at the current rate of $120 billion per month.

The Fed was so dovish because its economic forecasts are grim. U.S. GDP is expected to contract by 6.5% in 2020 before rebounding by 5% in 2021. This means that the economy will not get to its pre-coronavirus state before 2022.

Unemployment is expected to be at 9.3% by the end of this year before improving to 6.5% at the end of 2021 and 5.5% at the end of 2022.

At the first glance, the setup looks rather bearish for the U.S. dollar since the rate will stay near zero through 2022 while the Fed will continue asset purchases at a pace of $120 billion per month.

However, it is hard to expect that Bank of England will raise its rate sooner since the British economy is hit even more hard than the U.S. economy.

In addition, the grim economic forecast has prompted traders to dump riskier assets, providing support to the U.S. dollar.

Technical Analysis

GBP/USD has recently breached the resistance at 1.2750 but failed to settle above it and declined below 1.2700. The nearest support level for GBP/USD is located at 1.2630.

In case GBP/USD moves below this support level, it will likely gain additional downside momentum and head towards the next support at 1.2500. I’d note that GBP/USD may also get support slightly above 1.2500 at the 20 EMA which is located at 1.2530.

On the upside, GBP/USD still needs to settle above the resistance at 1.2750 in order to continue the upside move. If this happens, GBP/USD will head towards the next resistance level at 1.2830.

For a look at all of today’s economic events, check out our economic calendar.