GBP/USD Recovers Ahead of 200-Day SMA amid Hawkish BoE Rate Cut

British Pound Forecast: GBP/USD

GBP/USD retraces the decline following the US election as the Bank of England (BoE) delivers a hawkish rate-cut, and the Federal Reserve interest rate decision may keep the exchange rate afloat as the central bank is expected to further unwind its restrictive policy.

GBP/USD Recovers Ahead of 200-Day SMA amid Hawkish BoE Rate Cut

GBP/USD appeared to be on track to test the 200-Day SMA (1.2815) as it slipped to a fresh monthly low (1.2834) earlier this week, but the exchange rate may continue to hold above the moving average as it recovers ahead of the indicator.

In turn, GBP/USD may stage a larger recovery over the remainder of the week as the BoE argues that ‘a gradual approach to removing policy restraint remains appropriate,’ and it seems as though Governor Andrew Bailey and Co. will retain their current pace in pursuing lower interest rates as ‘monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.

US Economic Calendar

At the same time, the Fed is expected to lower US interest rates by 25bp, but the Federal Open Market Committee (FOMC) may continue to unwind its restrictive policy following the back-to-back rate cuts as the central bank ‘projects that the appropriate level of the federal funds rate will be 4.4 percent at the end of this year.’

With that said, a dovish Fed rate cut may keep GBP/USD afloat as the FOMC adjusts policy faster than its UK counterpart, but fresh remarks from Chairman Jerome Powell and Co. may generate a bullish reaction in the Greenback should the committee alter the forward guidance for monetary policy.

GBP/USD Price Chart –Daily

Chart Prepared by David Song, Strategist; GBP/USD on TradingView

• GBP/USD seems to be carving a bullish inside-day candle as it rebounds ahead of the 200-Day SMA (1.2815), with a breach above the monthly high (1.3048) raising the scope for a move towards the 1.3140 (78.6% Fibonacci extension) to 1.3150 (23.6% Fibonacci extension) zone.
• Next area of interest comes in around 1.3210 (50% Fibonacci extension) but the advance from the monthly low (1.2834) may unravel if GBP/USD struggles to close back above 1.3000 (61.8% Fibonacci extension).
• Failure to hold above the 1.2900 (23.6% Fibonacci retracement) to 1.2910 (50% Fibonacci extension) region brings 1.2820 (38.2% Fibonacci extension) back on the radar, with the next area of interest coming in around 1.2710 (23.6% Fibonacci extension) to 1.2760 (61.8% Fibonacci retracement).

Additional Market Outlooks

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US Dollar Forecast: USD/JPY Vulnerable to Looming Fed Rate Cut

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USD/CAD Reverses Ahead of 2022 High with Fed Rate Decision on Tap

--- Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong