The Fed decided to pause its tightening cycle at 5.00-5.25% as it wants to see more data before delivering another hike. The Fed is trying to reach an optimal level of monetary restraint that would bring inflation back to target without too much damage to the economy. They keep repeating that they are data-dependent and if the economy remains strong, they will have to do more.
The BoE, on the other hand, surprised with a bigger than expected 50 bps hike after the hot inflation report the day before and it’s expected to keep raising rates until the inflation outlook improves. Given the Fed’s pause and the BoE’s more aggressive move, there’s a policy divergence between the two central banks which should favour the British Pound.
GBPUSD Technical Analysis – Daily Timeframe
On the daily chart, we can see that the incredible rally in GBPUSD has stalled at the 1.2847 high. Since tapping into that price level, GBPUSD started to pull back and not even a hot CPI and a surprising 50 bps BoE hike could make it to extend higher. This should be a sign that the rally got overstretched and the market needs a healthy pullback before another move. The first support should be the 1.2680 level.
GBPUSD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the moving averages have crossed to the downside signalling a change in momentum. We can also find the 38.2% Fibonacci retracement level at the 1.2680 support which should give the zone a bit more strength. The buyers are likely to lean on this support zone with a defined risk below it and target a new high. The sellers, on the other hand, will want to see the price breaking lower to pile in and extend the fall into the 1.25 handle.
GBPUSD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that GBPUSD couldn’t break above the 1.28 resistance as even the spike after the bigger than expected hike was faded. That level is clearly significant, so the buyers should have even more conviction to keep bidding if the price manages to break above that level.
Today, we have the US PMIs on the agenda and it’s likely that a beat leads to more USD strength as it would make the market to price in the second hike expected by the Fed, but if the data misses, we should see the USD weakening as the market would price out the hike expected in July.
