The GBP/USD spot price choked this week as investors focused on the recent strong economic data from the United States. The pair declined to a low of 1.2138, which was a few pips below last week’s high of 1.2357. Focus now shifts to next week’s interest rate decisions by the Federal Reserve and Bank of England (BoE).
BoE and Fed decisions
The GBP to USD exchange rate declined slightly as the market reflected on the recent economic data from the United States. On Friday, data by the Bureau of Labor Statistics (BLS) revealed that the American economy added 283k jobs in November. Wages grew by 5.2% in November while the unemployment rate remained intact at 3.7%.
Focus now shifts to the upcoming BoE and Federal Reserve. Economists expect that the Fed will now hike interest rates by 0.50% in December after hiking by 400 basis points throughout this year. Recent reports suggest that the Fed will continue hiking rates in the coming months.
On a positive side, there are signs that the Fed is succeeding in its battle against inflation. The Consumer Price Index (CPI) dropped to 7.7% in November and there are signs that the trend is continuing. Gasoline prices have crashed to the lowest level in 12 months while the prices of most items has started falling. The US will publish the latest inflation data next week.
The GBP/USD spot price will also react to the upcoming Bank of England (BOE) decision. Unlike in the US, inflation in the UK remained at an elevated level while the economy is in a deep recession. Therefore, the BoE will likely be a bit cautious on its rate hikes.
The chart below shows that the GBP to USD exchange rate has been in a strong bullish trend in the past few weeks. Along the way, the pair has moved above the 50-day moving average while the Relative Strength Index (RSI) dropped below the neutral level. It has also formed a rising wedge pattern, which is usually a bearish sign.
Therefore, the pair will likely have a bearish breakout ahead of the BoE and Fed decisions. If this happens, the next reference level to watch will be at 1.1636, the highest level on October 26. The stop-loss for this trade is at 1.2270. For an up-to-date GBP to USD forecast, subscribe to our highly accurate S&R indicator.