GBP/USD Price Forecast: BOE Monetary Policy Report in Highlights
Arslan Butt • 3 min read
The GBP/USD ended the day at $1.3684, with a high of $1.3693, and a low of $1.3606. The pair broke its bearish trend of several days, reversing course on Wednesday, posting gains and recouping most of its previous losses. The GBP/USD currency pair posted gains and remained strong across the board, as the US dollar came under pressure after the US Federal Reserve released statements according to market expectations, which was already priced in.
The US Dollar Index, which measures the value of the greenback against a basket of six major currencies, fell to 93.82, weighing on the US dollar, despite stronger than expected macroeconomic figures for the day. The weakness of the US dollar pushed the GBP/USD higher in the market.
Quick review of economic events
At 12:00 GMT, the Nationwide HPI came in, indicating an increase to 0.7%, against the forecast of 0.3%, which supported the British Pound. This added to the gains in the GBP/USD. At 14:30 GMT, the Final Services PMI was released. It increased to 59.1, against the projected 58.0, bolstering Cable and adding further to the gains in the GBP/USD pair.
On the US front, at 17:15 GMT, the ADP Non-Farm Employment Change figures came in, showing an increase to 571K, against the estimated 400K. This supported the US dollar and further capped the gains in the GBP/USD. At 18:45 GMT, the release of the Final Services PMI showed a surge to 58.7, against the anticipated 58.2, which supported the US dollar and limited the upward momentum in the GBP/USD pair. The ISM Services PMI also surged, coming in at 66.7, against the forecast of 61.9, which lent strength to the US dollar, limiting further gains in the GBP/USD pair. Factory orders remained flat, in line with the expectations of 0.2%.
Hawkish FOMC and Fed Rate Decision
On Wednesday, the US Federal Reserve issued the statement relating to its monthly policy report meeting. They reported that, from November, the central bank would start tapering the economic support in the form of pandemic-era bond purchases. The final date for cessation of the bond purchases will be in mid-2022. It was highly anticipated and had already been priced into the market; therefore it ultimately had a null impact on the US dollar. On the other hand, the suggestion by the bank, that it was not ready to increase its interest rate yet, as the employment goals had still not been reached, had a negative impact on the US dollar, which ultimately provided support to the rising prices of the GBP/USD pair.
Meanwhile, Brexit remained a hot topic, with UK Prime Minister Boris Johnson declaring on Wednesday that the UK wants fundamental changes to the existing Northern Ireland Protocol. Analysts predict that the UK will soon invoke Article 16, which would allow the UK to take unilateral action on the agreement if it believes that the implementation of the protocol is resulting in substantial negative repercussions. EU leaders, on the other hand, have advised the UK against taking such measures.
Furthermore, UK traders are also waiting for the result of the monetary policy meeting of the Bank of England, which will be released on Thursday, and traders have been taking positions ahead of the announcement of this decision.
GBP/USD Price Forecast – Daily Technical Outlook
The GBP/USD currency pair is trading with a strong bearish bias at the 1.3662 level. The GBP/USD is likely to face immediate resistance at the 1.3690 level. This particular resistance level is being extended to 38.2% of the Fibonacci correction level. A bullish breakout at the 1.3690 level is likely to lead the GBP/USD towards the 50% and 61.8% Fibonacci retracement levels of 1.3712 and 1.3739, respectively. On the lower side, the market is likely to find immediate support at the 1.3606 level.
Pivot Point: 1.3661
Where is the violation of the 1.3606 level that could open further routes for selling until the 1.3549 level? The MACD and 50-day exponential moving average are providing a strong selling bias in the market. Let’s keep an eye on the Bank of England’s interest rate decision, which is not expected to change; however, the major focus will be on the tapering decision. This could drive massive volatility in the Sterling pairs on Thursday. Good luck!