GBP/USD forecast: Forex signal as it retests the 200-day EMA

September 07, 2023 12:00 AM AEST | By Invezz

GBP/USD forecast: Forex signal as it retests the 200-day EMA — Image source: Invezz

Dovish Bank of England

The British pound sell-off continued after a dovish statement by Andrew Bailey, the head of the Bank of England. In a statement, he noted that there was no need for more interest rates even as the headline inflation remains stubbornly high.

The BoE is at a major crossroads since the UK economy is clearly in a stagflation period, where slow growth is met with high inflation. The most recent data showed that the headline consumer price index (CPI) dropped to 6.0% in July.

More interest rate hikes will likely lead to more economic weakness. Therefore, analysts believe that the bank will decide to leave interest rates unchanged at the elevated level for a while.

The futures market expect that the bank will deliver another two hike this year and then gradually lower them in 2024. This view will depend on how inflation moves in the coming months, a difficult period since crude oil prices are soaring.

The GBP/USD price also rose as investors embraced a risk-off sentiment as oil prices jumped. These movements mean that the Federal Reserve could be forced to deliver another rate hike in September.

As a result, this expectation has led to a major jump of the US dollar index (DXY). The index, which tracks the USD against a basket of other currencies, soared to $104.7, the highest level in over five months.

It also rose after the better-than-expected non-manufacturing PMI data from the US. The ISM said that the PMI rose from 52.7 in July to 54.5 in August.

GBP/USD technical analysis

The daily chart shows why the GBP/USD pair made a bearish breakout. As shown, the pair formed a rising wedge pattern, which is usually a bearish sign. It has now moved below the lower side of this wedge pattern.

The pair has also retested the 200-day moving average, which is often seen as an important support. Further, the Relative Strength Index (RSI) and the MACD have drifted downwards.

Therefore, the pair will likely continue falling as sellers target the next key support at 1.2300, the lowest swing on May 26th. The stop-loss of this trade will be at the 50-day EMA at 1.2700.

The post GBP/USD forecast: Forex signal as it retests the 200-day EMA appeared first on Invezz.

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