GBP to USD Forecasts: Bears Eye Sub-$1.25 on Fed Uncertainty

It is a quiet start to the week for the GBP to USD. There are no UK economic indicators to draw interest. The lack of economic indicators leaves the GBP/USD in the hands of market risk appetite and sentiment toward central bank policy.

While the markets were betting on a more hawkish Bank of England near-term monetary policy outlook, uncertainty toward Fed monetary policy resurfaced last week.

The bets on a more hawkish Bank of England interest rate trajectory also leave a UK recession on the table. In contrast, US economic indicators signal a soft landing. Investor Sentiment toward the respective economies has left the GBP to USD short of the $1.26 handle.

With no economic indicators to influence, investors should monitor Bank of England chatter. However, no Monetary Policy Committee members are on the calendar to speak today, leaving investors to track commentary with the media.

GBP to USD Price Action

This morning, the GBP/USD was down 0.07% to $1.25701. A mixed start to the day saw the GBP to USD rise to an early high of $1.25825 before falling into the red.

Technical Indicators

Resistance & Support Levels

The Pound needs to avoid the $1.2568 pivot to target the First Major Resistance Level (R1) at $1.2601. A move through the Friday high of $1.25902 would signal an extended breakout session. However, the Pound would need market risk sentiment to support a breakout session.

In the event of an extended rally, the GBP/USD would likely test the Second Major Resistance Level (R2) at $1.2624 and resistance at $1.2650. The Third Major Resistance Level sits at $1.2681.

A fall through the pivot would bring the First Major Support Level (S1) at $1.2545 into play. However, barring a risk-off-fueled sell-off, the GBP/USD should avoid sub-$1.25. The Second Major Support Level (S2) at $1.2511 should limit the downside. The Third Major Support Level (S3) sits at $1.2455.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The GBP/USD sat above the 50-day EMA, currently at $1.24779. The 50-day EMA pulled away from the 200-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above the Major Support Levels and the 50-day EMA ($1.24779) would support a breakout from R1 ($1.2601) to target R2 ($1.2624) and $1.2650. However, a fall through S1 ($1.2545) would bring S2 ($1.2511) and the 50-day EMA ($1.24779) into view. A fall through the 50-day EMA would send a bearish signal.

The US Session

Eying the US session, there are no US economic indicators to shift the mood. With three days remaining, the probability of a 25-basis point Fed interest rate hike stood at 29.9%, up from 25.3% one week earlier. However, the sentiment toward the July interest rate decision has turned more hawkish.

According to the CME FedWatch Tool, the chance of a 25-basis point July Fed rate hike stands at 52.8% versus 30.1% for a hold. Significantly, bets on a 50-basis point July interest rate hike rose from 14.4% to 17.1% over the last week.