GBP/USD Daily Forecast – Range Conditions Remain Amidst Surprise Rate Cut from Fed

The Federal Reserve delivered an emergency 50 basis point rate cut on Tuesday which the markets had already priced in. GBP/USD spiked towards weekly highs but failed to extend on the momentum.

There were some talks earlier in the week that yesterday’s G7 meeting would result in a coordinated easing of monetary policy among the Group of Seven. Instead, the Federal Reserve was the only one to push forward with monetary policy easing in hopes of containing the downside impact expected from the Coronavirus.

Bank of England’s Governor Carney said in a statement on Tuesday that the bank is ready to act and support the economy as necessary. The markets view this as confirmation that the UK will see a rate cut at the next BoE meeting later this month and are pricing in an 84% chance of a quarter basis point cut.

In the North American session, the Bank of Canada is expected to also announce a 50 basis point rate cut. The BoC is one of the few banks around the world that have not eased policy in the last year.

The post-election upward momentum in service sector growth faded in February as IHS Markit reported its UK Services PMI declining moderately to 53.2 from 53.9 in January. The slowdown was partially attributed to the Coronavirus which has led to disruptions in industries such as travel and tourism.

Technical Analysis

GBP/USD showed some reversal potential yesterday after closing in the green to end a prior four consecutive day losing streak. However, the pair is seen reversing a bulk of its recent gain in early trading today.

Major support for the pair is found at 1.2751. It will take a break below it to confirm a bearish trend continuation. In the event of a move lower, strong support is seen at 1.2694 which marks a horizontal level as well as the 200-day moving average.

To the upside, the lower bound of a previously broken downward trend channel has been capping rallies. Slightly above it, major resistance is seen at 1.2850.

Bottom Line

• GBP/USD remains range-bound in the early week, contained between roughly 1.2750 and 1.2830.
• A bearish break below 1.2750 is likely to see the pair decline to test a confluence of support at 1.2694.