The British pound saw a slight uptick for the second consecutive day as traders prepared for the Federal Reserve’s meeting on Wednesday and the Bank of England’s decision on Thursday.
On Wednesday, the Fed is anticipated to hold interest rates steady between 3.50% and 3.75%, largely due to the uncertainties stemming from the ongoing conflict in Iran impacting economic outlooks.
There’s a general consensus that the central bank will vote to keep its rate at 3.75% in a 7-2 decision on Thursday, especially as the unrest in Iran has diminished the likelihood of a rate cut happening in March.
The GBP/USD pair increased about 0.3% on Tuesday, marking a second consecutive session of gains, trading near 1.3360. After dipping to a three-month low of around 1.3220 recently, the exchange rate appears to have stabilized within a range of 1.3250 to 1.3300, though it still sits below both major daily moving averages. While the two-day rise has resulted in a couple of moderately bullish candles, the pair remains beneath significant declines that started in late January when it peaked around 1.3870.
When the Federal Reserve announces its decision on interest rates in March, it’s almost a given that they will maintain the status quo. Key attention will be drawn to the latest Summary Economic Projections (SEP) and dot plot, as the ongoing turmoil in Iran and rising energy prices make the path for potential future rate cuts quite complex. Market expectations have altered swiftly since the onset of the conflict, with traders now predicting just one rate cut this year, likely in December, instead of the previously anticipated two or three cuts. It will be fascinating to observe if Chairman Jerome Powell gives any hints about how the Federal Open Market Committee (FOMC) views the impact of the oil shock and a weakening labor market, particularly during what will be one of his last press conferences before stepping down in May.
Thursday is also set to be revealing for the pound. The UK will release its employment statistics first, with predictions suggesting an increase in the ILO unemployment rate from 5.2% to 5.3%, and a drop in average incomes from 4.2% to 3.9%. The Bank of England is expected to announce its interest rate decision around midday, likely opting to maintain it at 3.75% in a 7-2 vote. Just weeks ago, the market believed there was an 80% chance of a rate cut in March, but the situation triggered by the Iranian energy crisis has turned that around. The breakdown of the vote will be under scrutiny, with the 6-3 split indicating stronger dovish sentiments than the 7-2 consensus might imply.
GBP/USD daily chart
technical analysis
Looking at the daily chart, the GBP/USD is currently trading at 1.3361. It remains slightly above the 200-day exponential moving average, which is around 1.3375, but it falls short of the 50-day EMA located near 1.3460. The short-term sentiment still leans slightly bearish within a broader context. A recent streak of low closes from the mid-1.36s to the low-1.33s indicates ongoing selling pressure; however, the Stochastic Oscillator’s position in the low 20s suggests that the downward momentum is tapering off, rather than gaining strength.
Immediate resistance can be found in the 1.3400 to 1.3420 zone, and a breakout could lead to the 1.3460 area near the 50-day EMA. To shift the negative outlook, a daily close above this level will be necessary to allow for a rally towards 1.3550. On the downside, initial support rests at the recent lows around 1.3220, with the 1.3150 area as a further support point if selling pressure really takes hold. If the price manages to drop below 1.3220, it would confirm a continuation of bearish momentum towards even lower levels.
