The outlook for the GBP/USD pair is bearish, with the next psychological level to watch will be at 1.200.

Bearish view

Sell the GBP/USD pair and set a take-profit at 1.2250.
Add a stop-loss at 1.2330.
Timeline: 1-2 days.

Bullish view

Set a buy-stop at 1.2315 and a take-profit at 1.2400.
Add a stop-loss at 1.2250.

The GBP/USD freefall gained steam and reached the lowest level since March 28th. The pair slipped to a low of 1.2233 on Monday, much lower than the year-to-date high of 1.3157.

Fed and BoE divergence

The GBP/USD exchange rate retreated after the Federal Reserve and Bank of England diverged. In its meeting, the Fed decided to leave rates unchanged between 5.25% and 5.50%. Its dot plot pointed to another 0.25% rate later this year, bringing them to between 5.50% and 5.75%.

The Bank of England also left rates intact at 5.25% after data showed that UK inflation slipped slightly in August. This was the first time in 14 meetings that the bank decided to leave rates intact. It also decided to reduce the stock of UK government bond purchases by 100 billion pounds.

Economists believe that the BoE will leave interest rates unchanged in the coming meetings since the British economy is slowing. This view was confirmed by the relatively weak UK retail sales and flash manufacturing and services PMI numbers.

According to the Office of National Statistics (ONS), retail sales rose by 0.4% in August, lower than the median estimate of 0.5%. It dropped modestly from the same period in 2022.

The GBP/USD pair will have several important catalysts this week. For example, the Conference Board will publish the latest consumer confidence data on Tuesday. These are crucial numbers because consumer confidence is the biggest part of the US economy.

The pair will also react to the latest US government shutdown risks. Republicans in Congress are struggling to reach a deal to prevent the shutdown and analysts believe that it will happen. A shutdown, together with the ongoing UAW strike will affect the country’s economy.

GBP/USD technical analysis

The GBP/USD pair has been in a strong bearish trend in the past few months. On the daily chart, the pair dropped below the 50-day EMA and the 25-day Weighted Moving Average (WMA). Sterling has dropped below the key support at 1.2315, the lowest point on May 25th.

As a result, the Relative Strength Index (RSI) and the Stochastic Oscillator have moved below the oversold level. Therefore, the outlook for the pair is bearish, with the next psychological level to watch will be at 1.200.

(Click on image to enlarge)

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