Bearish view

• Sell the GBP/USD pair and set a take-profit at 1.2000.
• Add a stop-loss at 1.2250.
• Timeline: 1-2 days.

Bullish view

• Set a buy-stop at 1.2225 and a take-profit at 1.2325.
• Add a stop-loss at 1.2150.

The GBP/USD price continued its recovery after a hawkish statement by the Bank of England’s (BoE) chief economist. It rose to 1.2200, the highest point since December 20th as the US dollar index continued its strong sell-off.
 

Hawkish BoE Economist statement

The GBP/USD exchange rate rose after Huw Pill, BoE’s chief economist warned that it was too early to say that the country’s inflation battle had been defeated. While prices have eased slightly in the past two months, they remained above the 2% target.

As a result, he warned that the central bank had more work to do to bring prices lower. He insisted that the UK was unique in normalizing interest rates from historic lows amid tight labor markets and high energy prices.

Therefore, the bank will likely continue hiking interest rates in a bid to lower inflation. Analysts expect several more rate hikes this year after it pushed the headline rate to 3.5%.

The GBP/USD pair also rose after the prime minister and his labor minister started negotiating with unions. In a statement, Rishi Sunak said that he had seen positive signs from the negotiators. Several strikes by key industries like healthcare and education are planned to strike later this month. A deal will help to reduce the impact of a recession.

The GBP/USD pair will next react to the upcoming statement by the Federal Reserve chair. In his first statement this year, Powell will likely talk about the state of the economy and what to expect from the bank. The statement will come a few days after the US published December’s jobs numbers, which showed that the unemployment rate dropped to 3.5%.

Powell is expected to point to the need for more rate hikes in the coming meetings in a bid to temper the current enthusiasm by investors. The Dow Jones has added over 1,000 points in the past two days while Treasury yields have dropped.
 

GBP/USD forecast

The GBP/USD price drifted upwards ahead of the upcoming Fed chair statement. As it rose, the pair managed to move above the upper side of the descending channel pattern. It also moved to the upper side of the Bollinger Bands. Sterling also rose above the 50-day moving average while the Stochastic Oscillator has moved above the overbought level.

Therefore, the pair will likely retreat before or after Jerome Powell’s statement. If this happens, the pair will likely retreat as sellers target the psychological level of 1.2000.

(Click on image to enlarge)

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