Trade Of The Week: GBPUSD Braces For Fed & BoE Combo

<p><strong>By <a href="http://investmacro.com/contributors/contributor-profile-forextime/">ForexTime</a> </strong></p>
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<ul>
<li>Fed/BoE combo could trigger GBPUSD volatility</li>
<li>Watch out for UK CPI report mid-week</li>
<li>Fed widely expected to leave rates unchanged</li>
<li>BoE expected to hike rates by 25 basis points</li>
<li>GBPUSD could see big moves, keep eye on 1.2430 level</li>
</ul>
<p>A super central bank combo featuring the Federal Reserve and Bank of England may trigger extreme levels of volatility in the GBPUSD this week.</p>
<p><img decoding="async" loading="lazy" class=" lazyloaded" src="https://www.forextime.com/s3-static/users/user17/GBPUSDH1_1.png" alt="" width="1000" height="800" data-entity-type="file" data-entity-uuid="75e72d9d-e9e6-485f-b29d-57648730c348" data-src="/s3-static/users/user17/GBPUSDH1_1.png" /></p>
<p>The past few months have been rocky for Sterling which is down roughly 2.4% in the second half of 2023 thus far.</p>
<p><img decoding="async" loading="lazy" class=" lazyloaded" src="https://www.forextime.com/s3-static/users/user17/GBP%20H2.png" alt="" width="970" height="742" data-entity-type="file" data-entity-uuid="d03480d3-a84a-42d0-8a6d-69cba0437bc9" data-src="/s3-static/users/user17/GBP%20H2.png" /></p>
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<h4>Pound bears seem to be drawing strength from stagflation fears amid rising unemployment, sticky inflation, and stagnant economic growth.</h4>
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<p>Buying sentiment towards the currency has also been hit by disappointing economic data, further supporting Governor Andrew Bailey’s comments about the BoE nearing the end of its hiking cycle. Taking a glance at the technicals, the GBPUSD is approaching weekly support at 1.2310 – where the 50-week SMA resides.</p>
<p><img decoding="async" loading="lazy" class=" lazyloaded" src="https://www.forextime.com/s3-static/users/user17/GBPUSDWeekly_15.png" alt="" width="1000" height="800" data-entity-type="file" data-entity-uuid="51ac3dc3-8b62-4b0f-9728-b29227bd1dd2" data-src="/s3-static/users/user17/GBPUSDWeekly_15.png" /></p>
<h4><strong>The GBPUSD could see big moves this week and here and 3 reasons why…</strong></h4>
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<h3>BoE rate decision</h3>
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<p><strong>The Bank of England (BoE) monetary policy decision will be on Thursday 21st September. </strong></p>
<p>24 hours before the BoE decision, the latest UK inflation figures will be published with markets forecasting CPI to rise 7.0%, up from the July print of 6.8%. Core inflation is projected to cool 6.8% year-on-year, down from 6.9% in the previous month. This report could influence expectations around what the BoE does beyond September.</p>
<blockquote>
<h4>Markets widely expect the BoE to raise interest rates by 25 basis points. This would be the 15th straight hike, taking the key rate to 5.5% – its highest level since 2007. The key question is whether this will be the final rate hike as policymakers weigh sticky inflation against growth concerns.</h4>
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<p>Traders are currently pricing in a 79% probability of a 25 basis point hike on Thursday, with the probability of another 25 basis point hike by December currently standing at 45%.</p>
<ul>
<li>If the BoE raises rates and signals the possibility of another 25 basis point hike before the end of 2023, this could propel the GBPUSD higher.</li>
<li>A dovish sounding BoE that hikes interest rates but hints that this could be the final move for the remainder of 2023 may drag the GBPUSD lower.</li>
</ul>
<ol start="2">
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<h3>Fed rate decision</h3>
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<p><strong>Markets widely expect the Federal Reserve to leave interest rates unchanged at 5.5% at the September 19-20 meeting. </strong></p>
<p>Investors will direct their attention towards the economic projections, dot plots and press conference by Jerome Powell which could offer clues on future rate hikes.</p>
<ul>
<li>The GBPUSD may find itself under renewed pressure if the Fed signals one more interest rate increase in 2023.</li>
<li>Should the central bank hint that it could be done with hikes for the rest of 2023, this may weaken the dollar – pushing the GBPUSD higher as a result.</li>
</ul>
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<h3>Bearish technical forces</h3>
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<p><strong>The GBPUSD remains under pressure on the daily timeframe as there have been consistently lower lows and lower highs.</strong></p>
<p>Prices are trading below the 50, 100, and 200-day SMA while the MACD trades below zero. Bears are certainly in a position of power with the recent daily close below the 200-day SMA opening the doors to further downside.</p>
<ul>
<li>Sustained weakness below 1.2430 could encourage a decline towards 1.2310 and 1.2250, respectively.</li>
<li>Should prices push back above the 200-day SMA at 1.2430, this could spark a rebound back toward the 1.2540 level and 1.2646 where the 100-day SMA resides.</li>
</ul>
<p><img decoding="async" loading="lazy" class=" lazyloaded" src="https://www.forextime.com/s3-static/users/user17/GBPUSDDaily_55.png" alt="" width="1000" height="800" data-entity-type="file" data-entity-uuid="2a54f20e-cadb-4a32-9bce-b7ae5d0bb04a" data-src="/s3-static/users/user17/GBPUSDDaily_55.png" /></p>
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<p><img decoding="async" loading="lazy" class="size-full wp-image-54242 alignleft" src="https://www.investmacro.com/articles-analysis/wp-content/uploads/2014/07/Forex-Time-Logo.png" alt="Forex-Time-Logo" width="262" height="90" /><strong>Article by <span><a href="https://www.investmacro.com/contributors/contributor-profile-forextime/">ForexTime</a></span></strong></p>
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