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The GBP/USD currency pair finished the week’s trading around the 1.21725 level. Having started the week essentially near the 1.20700 mark, the possibility of a bullish outcome for the pair should be considered.

Yes, volatility did hit the GBP/USD last week, and a low of 1.20085 was touched approximately on Wednesday. However, the currency pair was able to incrementally trade higher after this and came within sight of the highs near the 1.22000 area before going into the weekend and suffering a slight reversal lower.

GBP/USD Traders Should Brace for The U.S. Federal Reserve and The BoE

The hit to banking confidence will no doubt continue into this week, and that will certainly make for nervous trading conditions in the GBP/USD pair. However, from a speculative point of view, the rather robust results seen with the pair are intriguing. The currency pair finished its trading within the upper part of the weekly price range and was able to maintain a rather steady pace higher, which started on March 8.

Yes, global concerns regarding Credit Suisse and U.S. regional banks will continue to be heard in the coming days, but the buying in the GBP/USD pair that has been generated over the past week and a half is worth pondering on.

The U.S. Federal Reserve will announce its interest rate decision this coming Wednesday, and the Bank of England will follow on Thursday. Having taken a rather aggressive stance only two weeks ago, the U.S. Federal Reserve is now in a murkier position regarding what it will do with the Federal Funds rate on March 22.

It is highly unlikely the Fed will hike by 0.50% this coming week. However, a rise of a quarter of a point is still potentially possible. What does seem almost certain is that the Bank of England will hike the Official Bank Rate by 0.25% this week, as it is forecast to reach 4.25%. There are no guarantees, but it is these estimates that have likely been powering the recent moves in the GBP/USD currency pair.

• The GBP/USD pair has likely gained because financial houses which felt the U.S. Fed would be overly aggressive a couple of weeks ago are now reconsidering their outlooks.
• However, if the U.S. Federal Reserve ‘only’ raises its interest rate by 0.25%, this might have already been digested by the Forex markets.

Inflation is Important, but the Health of the Global Banking Sector is Vital

The GBP/USD pair may continue to find some upwards movement based on the notion that financial houses may still be trying to get out of their overly aggressive US dollar positions. This means that the GBP/USD pair may have been oversold two weeks ago based on the prospect that the U.S. Fed would increase by 0.50 because of its emphasis on inflation.

However, the shadows now being cast by the banking sector have made a large hike by the U.S. central bank highly improbable. This likely set the stage for the amount of buying seen in the GBP/USD pair, but now speculators need to consider if this buying has been overdone.

GBP/USD Weekly Outlook

The speculative price range for the GBP/USD currency pair is 1.20530 to 1.23010.

Nervous market conditions are certainly going to continue this week as financial institutions try to find their equilibrium within equities and Forex. If the GBP/USD pair sells off this coming week, it does appear like technical support around the 1.20600 to 1.20500 range may prove to be durable.

Having made solid gains and enjoying a relatively strong bullish trend over the past week and a half, the GBP/USD currency pair may see some selling as a short-term reaction. However, traders who want to pursue bearish positions should not be overly ambitious. The ability of the GBP/USD pair to remain above rather moderate support levels last week indicates that some bullish sentiment may still be brewing. 

Traders looking for more upside potential in the pair would certainly get a boost if the Fed says it is going to pause its aggressive interest rate stance this week. While a 0.25% hike is a possibility, the idea that the U.S. Federal Reserve could deliver an unclear message regarding near-term monetary policy this Wednesday could cause nervous and choppy conditions in the GBP/USD, too.

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