GBP to USD Forecast: Bank of England Governor Bailey vs. Fed Chair Powell

Highlights

• The GBP/USD declined by 0.35% on Tuesday, ending the session at $1.22996.
• Uncertainty toward the Fed interest rate path weighed on the GBP/USD.
• On Wednesday, Bank of England Governor Andrew Bailey and Fed Chair Jerome Powell will dictate the near-term GBP/USD trend.

The Tuesday GBP/USD Overview

On Tuesday, the GBP/USD fell by 0.35%. Following a 0.28% loss on Monday, the GBP/USD ended the day at $1.22996. The GBP/USD reached a high of $1.23470 before falling to a low of $1.22622.

Bank of England Governor Andrew Bailey in Focus

On Wednesday, the Bank of England and monetary policy will be in focus. Bank of England Governor Andrew Bailey will deliver a keynote address at the Central Bank of Ireland’s Financial Systems Conference.

The focal points will include views on the UK economic outlook, inflation, and the interest rate trajectory. The GBP/USD will show increased sensitivity to the talk about a prolonged UK recession and BoE rate cuts.

On Monday, Bank of England Chief Economist Huw Pill discussed a rate cut in August 2014. A more dovish outlook on the economy and a need to bring the timing of a rate cut forward would weigh on the appetite for the Pound.

Fed Chair Jerome Powell in the Spotlight

On Wednesday, Fed Chair Jerome Powell will garner investor attention. US economic indicators have reflected a softer labor market, with the US services sector expanding at a less marked pace.

However, uncertainty remains about whether the labor market has softened enough to allow the Fed to end its rate hike cycle. Despite the softening, labor market conditions are tight, and inflation remains elevated.

The need for more weakness across the labor market and a slower economy could leave a Fed rate hike on the table. Additionally, a hawkish stance might postpone expectations of a Fed interest rate cut.

While the Fed Chair Powell speech will be the focal point, FOMC member speeches also need consideration. Fed Vice Chair John Williams and FOMC voting members Michael Barr, Philip Jefferson, and Lisa Cook will deliver speeches.

Divergent views on the economic outlook and interest rate path would fuel uncertainty and pressure the GBP/USD.

Short-Term Forecast

Central bank speeches will continue to dictate GBP/USD trends before Friday’s UK GDP Report. The UK economy remains on a weaker footing compared with the US. The deteriorating UK macroeconomic environment suggests the BoE may cut interest rates before the Fed. Market bets on the BoE cutting rates ahead of the Fed could bring sub-$1.20 into view.

GBP to USD Price Action

Daily Chart

The GBP/USD held below the 50-day and 200-day EMAs, sending bearish price signals.

A GBP/USD break above the 50-day EMA would support a move to the 200-day EMA and $1.24410 resistance level.

BoE Governor Andrew Bailey and Fed Chair Jerome Powell will be the focal points on Wednesday.

Failure to move through the 50-day EMA would support a drop below $1.22000. A fall below $1.22000 would give the bears a run at the $1.21216 support level.

The 14-period daily RSI reading of 53.23 suggests a GBP/USD move to the 200-day EMA before entering overbought territory.

4-Hourly Chart

The GBP/USD remains above the 50-day and 200-day EMAs, reaffirming bullish price signals.

A GBP/USD return to $1.23 would support a move toward the $1.24410 resistance level.

However, a break below the 200-day and 50-day EMAs would bring the $1.21216 support level into view.

The 14-period RSI on the 4-hour chart, 49.11, suggests a GBP/USD fall below $1.22 before entering oversold territory.