Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.3200.
- Add a stop-loss at 1.3450.
- Timeline: 1-2 days.
Bullish view
- Sell the GBP/USD pair and set a take-profit at 1.3450.
- Add a stop-loss at 1.3200.
The GBP/USD pair pulled back as the US dollar stabilized and after odds of a Bank of England rate cut rose. It dropped to 1.3335, down from this week’s high of 1.3427. Still, it remains significantly higher than the year-to-date low of 1.2100.
Bank of England rate cuts
The GBP/USD exchange rate pulled back as odds of a rate cut by the Bank of England (BoE) rose. Odds of a rate cut by the Bank of England (BoE) in May rose to 100%, according to London Stock Exchange data.
Still, a BoE member, Megan Greene, hinted that the ongoing trade war will likely be deflationary. She argued that many of the goods that would be destined to the US from China will now go to Europe.
The argument is that China will boost its exports to other countries, leading to lower inflation. She also noted that the strong pound will also make imports to the UK cheaper, lowering inflation.
Most economists agree that Trump’s tariffs will affect countries lik the US and the UK. In a statement on Tuesday, the IMF said that the UK will grow by 1.1% this year, down by 0.5% from the previous estimate. The agency cited the tariffs and the relatively higher borrowing rates in the country.
The IMF also lowered the US GDP estimate to 1.8%, dow from last year’s 2.8%.This estimate was much lower than the estimate made in January.
Looking ahead, the UK and US will publish the flash manufacturing and services PMI numbers. These numbers are expected to show that the two sectors eased in the UK and the US as companies adjusted to the tariffs.
The other key catalyst will be a statement by Bank of England’s Andrew Bailey and Fed officials like Raphael Bostic and Beth Hammack.
GBP/USD technical analysis
The GBP/USD pair pulled back after hitting the crucial resistance level at 1.3427 on Monday. It pulled back and moved to a low of 1.3335. This retreat is normal since traders prefer to take profits after an asset hits an important resistance level.
It has remained above the second resistance of the Woodie pivot point and the 50-day moving average. The Relative Strength Index (RSI) and the Stochastic Oscillator have continued rising.
Therefore, the pair will likely drop and retest the psychological point at 1.3200 and then resume the uptrend.
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