Bear’s gaze
- Sell the GBP/USD pair and set a profit take at 1.2200.
- Add a stop-loss at 1.2425.
- Time frame: 1-2 days.
Bullish view
- Place a buy stop at 1.2360 and take profit at 1.2425.
- Add a stop-loss at 1.2250.
The GBP/USD pair fell to its lowest level since April 2024 after the Fed released very dodgy minutes of its last meeting. It fell to a low of 1.2320, continuing a trend that began in September when it peaked at 1.3431.
Potential divergence of the BoE and the Fed
The GBP/USD pair has been in a strong downtrend over the past few months as investors embraced the US dollar following the election of Donald Trump. This downward trend is also due to a potential divergence between the Federal Reserve and the Bank of England.
The Fed cut interest rates by 1% in 2024, while the BoE cut by just 0.50%. However, there is a chance that the situation will change this year as the Fed becomes increasingly hawkish on inflation fears.
Minutes released Wednesday showed Fed officials are more concerned about Donald Trump’s policies and their impact on inflation. They now expect headline inflation to take months to move to the 2% target. As such, they forecast just two cuts this year, with analysts predicting the first at the July meeting.
The BoE, on the other hand, is expected to be more dovish this year. It has been blamed for keeping interest rates higher than expected, and analysts believe the bank has cut rates by at least 1% this year.
The next important driver for the GBP/USD pair will be the upcoming US Non-Farm Payrolls data due on Friday. These numbers will provide more information about the labor market, another important piece of data the Fed tracks.
Economists expect the number of NFPs to exceed 150,000, with an unemployment rate of 4.2%. While these are important numbers, their impact on the Fed will be limited as it now focuses on inflation.
GBP/USD technical analysis
After the unfortunate minutes from the Fed, the GBP/USD pair continued its strong downtrend this week. The pair fell to the 78.6% Fibonacci retracement level. It also formed a death cross pattern as the 50-day and 200-day weighted moving averages (WMA) crossed in November.
Also, the Average Directional Index (ADX0) remained above 32, which is a sign that the downward momentum is strong. Also, the shiny oscillator and MACD indicators are all pointing down. Therefore, the pair is likely to continue to fall as sellers target the psychological point at 1.2200 .
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