GBP/USD Price Forecast: Anticipation Builds Around BoE Announcement

GBPUSD FUNDAMENTAL BACKDROP

The British pound briefly crept above the May 2022 swing high at 1.2667 to reach 1.2669 yesterday printing a fresh yearly high. Looking at money market pricing below, the probability for the Bank of England (BoE) to raise interest rates by 25bps has now climbed to almost 100% – up from 83% on Friday. As mentioned in my analysis last week, no surprises are expected here but what is of more importance is the BoE’s messaging going forward. Hawks are jumping in and revising rate hikes to the upside (60bps by year end) but with the Federal Reserve looking to pause in its hiking cycle, the BoE may not want to be too aggressive in its messaging. I think the BoE will allow for data dependency to drive decision making but look out for growth and inflation forecasts as well. A final factor to consider is the vote split which revealed a 7-2 split in favor of a hike while the 2 dissenters preferred rates to remain on hold. We are likely to see a similar split, perhaps 6-3 but will any members opt for a rate cut?

BANK OF ENGLAND INTEREST RATE PROBABILITIES

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Source: Refinitiv

Earlier this morning the UK’s Halifax housing report (see economic calendar below) printed the first decline for the year on a month-month basis. Halifax Bank’s mortgages director stated the following:

“The economy has proven to be resilient, with a robust labor market and consumer price inflation predicted to decelerate sharply in the coming months.”

“The economy has proven to be resilient, with a robust labor market and consumer price inflation predicted to decelerate sharply in the coming months.”

If this really is the beginning of a reduction in inflationary pressures, the BoE’s current market pricing may change drastically, hurting the pound in the short-term.

Later today, Fed speakers are back in focus after their obligatory blackout period and will be closely watched as to how they portray the recent US Non-Farm Payroll (NFP) data as well as their takes on tomorrow’s US CPI.

ECONOMIC CALENDAR

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TECHNICAL ANALYSIS

GBP/USD DAILY CHART

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Chart prepared by Warren Venketas, IG

Daily GBP/USD price action still tests the upper bound of the rising wedge chart pattern (black) with no real conviction from bulls to make a meaningful push higher. The next stop would be the June 2020 swing low at 1.2813. The Relative Strength Index (RSI) looks to be opposing the higher highs on GBP/USD and I still remain skewed towards a pullback lower. That being said, upcoming US CPI and the BoE announcement will dictate the short-term directional bias for the pair.

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