GBP/USD: Next Target 1.23000 on BoE Interest Rate Bets despite Banking Crisis
- GBP/USD rebounded to a five-week high.
- All eyes are on the FOMC meeting.
- The market expects the Bank of England to maintain a steady monetary policy despite the SVB collapse.
- Next Target 1.23000 psychological resistance.
- Lower high pattern break.
GBP/USD Fundamental Analysis
GBP/USD is trading at 1.2225, up 0.42% over the past 24 hours. The currency pair increased because of speculations that the BoE will raise interest rates this week.
Fed meeting in focus
Markets recently bet that the Federal Reserve (Fed) will tone down its hawkish stance to stop additional economic pressure from high-interest rates in response to the recent turmoil in the banking industry. Concerns over the Fed’s monetary policy caused the US Dollar Index to fall to 103.47.
The market also anticipates the Fed’s interest rate announcement on Wednesday. According to a recent Reuters survey, 76 out of 82 analysts believe that the US Federal Reserve would increase its policy rate by 25 basis points, to a range of 4.75 to 5%, after the Federal Open Market Committee (FOMC) meeting in March.
If the US Fed signals caution about upcoming rate hikes or halts the existing increases, the GBP/USD currency pair may climb further.
BoE coming monetary policy
The United Kingdom, unlike other nations, has been struggling with a bleak economic outlook, political unrest, and ongoing inflationary pressures. The main drivers of rapid inflation have continued to be labor shortages and rising food prices.
The Bank of England has undoubtedly limited its monetary policy to slow the rising inflation. However, further worries about the global banking crisis amid the Silicon Valley Bank collapse might cause BoE officials more difficulties.
Experts predict a quarter-point rate rise. The interest rate has already hit 4%. Rates would reach 4.25% if BoE Governor Andrew Bailey raised rates by 25 basis points.
GBP/USD increased as the market sentiments strengthened because of expectations that the Bank of England will raise interest rates this week. However, the central bank must find a fine line between the campaign against inflation and concerns about bank failures.
Moreover, the movement of the pound would not be limited to the Bank of England’s monetary policy on Thursday. The Consumer Price Index (CPI) data, due Wednesday, will influence the BoE’s decision-making, potentially giving the GBP/USD pair some significant momentum.
GBP/USD Technical Analysis
The H4 Chart of the currency pair GBP/USD shows signs of a strong bullish trend. The price has regained its upside potential after breaking the Lower High pattern. Furthermore, the 50-Period Simple Moving Average line has also broken the 200-Period SMA line from below, indicating buying pressure in the market. Right now, GBP/USD is facing initial resistance at 1.22435. Any break above this level will push the prices towards critical resistance at a 23.6% Fibonacci Retracement level of 1.22955 (calculated from the high of 1.24478 on January 23 to a low of 1.18027 on March 08).
It appears that bulls are targeting the 1.23000 psychological mark, close to the 23.6% Fibonacci Retracement level. Here, the forex pair GBP/USD might experience some strong resistance. Any break above this level will further push the prices to the weekly resistance zone.
On the other hand, if prices fail to move past the psychological 1.23000 level, the currency pair will see first support at 38.2% Fibonacci Retracement level at 1.22019 level. Any break below this level will further drag the prices to 1.21000.
However, the technical indicators, including the MACD and RSI, also indicate bullish pressure ahead. The Moving Average Convergence & Divergence is making longer histogram bars above the zero line. Furthermore, the Relative Strength Index is about to enter the overbought region after breaking above the 70 levels.
Overall, the H4 chart outlook of GBP/USD shows that the pair could continue moving in the upside direction in the short run. Therefore, the idea is to open a buy position in the market with a target of the 1.22955 mark.
Daily Technical Levels
Pivot Point: 1.2198