The GBP/USD exchange rate continued its strong downward trend, moving from the year-to-date high of 1.3876 to the current 1.3672 as traders wait for the upcoming Bank of England (BoE) interest rate decision and US non-farm payrolls (NFP) data.
Bank of England interest rate decision
The GBP/USD exchange rate retreated as investors focused on the upcoming Bank of England interest rate decision on Thursday this week.
Most economists believe that the BoE will leave interest rates unchanged at 3.75% as officials remain concerned about the elevated inflation in the country.
The most recent data showed that the UK’s consumer inflation remained much higher than the Bank of England’s target of 2.0%. Data released recently showed that the headline Consumer Price Index (CPI) dropped to 3.4% in December last year.
While officials believe that prices will drop to 2.0% soon, officials at the Bank of England are divided on when this will happen. However, the recent crude oil price surge after Trump announced a potential attack on Iran, could push inflation higher in the near term.
More data showed that the unemployment rate remained steady at 5.1% in the three-months through November last year. Wage growth is expected to undershoot the bank’s forecast for the fourth quarter.
Meanwhile, the central bank expects that the British economy will continue slowing in the coming months because of Rachel Reeves’ tax increases. The view is that the economy grew by 1.2% this year.
US non-farm payrolls jobs numbers
The next key catalyst for the GBP/USD exchange rate will be the upcoming US non-farm payrolls data, which will come out later this week.
Data compiled by TradingEconomics shows that the economy created 70k jobs in January, while the unemployment rate remained unchanged at 4.4%.
The data comes a day a week after the Federal Reserve left interest rates unchanged between 3.50% and 3.75%. Officials also upgraded the economic outlook, pointing to lower inflation in the coming weeks.
The GBP/USD pair will also react to the nomination of Kevin Warsh to become the next Federal Reserve Chairman. Warsh is widely seen as a highly hawkish official who has criticized the Fed for cutting interest rates and implementing quantitative easing policies.
Meanwhile, the pair will also react to the upcoming attack on Iran, which may happen as early as this week. Such an attack will lead to higher oil prices, which will lead to more volatility and high inflation.
GBP/USD technical analysis
The daily timeframe chart shows that the GBP/USD exchange rate peaked at 1.3876 in January and has pulled back to the current 1.3670. It has moved to the Major S&R pivot point of the Murrey Math Lines tool.
The GBP to USD pair has moved below the important support level at 1.3727, its highest level in September last year. Also, the Relative Strength Index (RSI) and the MACD indicators have continued falling.
Therefore, the most likely GBP/USD forecast is bearish, with the next key target level being at 1.3500. The pair will likely resume the uptrend, potentially to the Ultimate Resistance level at 1.4160.
