GBP/USD Weekly Forecast: Fed Policy, BoE Votes, and Economic Data

Weekly Overview of the GBP/USD in the Week Ending March 15, 2024

In the week ending on March 15, the GBP/USD slid by 0.96% to $1.27316. The GBP/USD rose to a Monday high of $1.28620 before falling to a Friday low of $1.27204.

GBP/USD Analysis:

UK inflation numbers for February warrant investor interest on Wednesday. Sticky inflation numbers could impact bets on a 2024 Bank of England interest rate cut. A higher-for-longer BoE rate path could reduce disposable income, curb spending, and dampen demand-driven inflation.

Economists forecast the UK annual inflation rate to soften from 4.0% to 3.6%. The GBP/USD pair could be more sensitive to the February numbers, with the BoE in action on Thursday.

On Thursday, preliminary UK private sector PMIs will also need consideration. The Services PMI will likely draw more interest, with services contributing over 70% to the UK economy.

A pickup in service sector activity could support a higher-for-longer BoE interest rate trajectory. Beyond the headline number, investors must consider the sub-components, including employment, wage growth, and output prices.

Economists forecast the UK Services PMI to rise from 53.8 to 54.0 in March.

While the Services PMI will be a focal point, the Bank of England monetary policy decision is the main event. The markets expect the Bank of England to leave interest rates at 5.25% on Thursday. However, the vote count and monetary policy meeting minutes need consideration. A hawkish vote count and support to keep rates unchanged until Q4 2024 could drive buyer demand for the Pound.

Economists expect two members of the Monetary Policy Committee to vote in favor of a rate hike.

On Friday, UK retail sales will also draw investor interest. A continued rise in spending could fuel demand-driven inflation and support sentiment toward a BoE hold in 2024. Economists forecast retail sales to decrease by 0.3% in February after surging 3.4% in January.

Beyond the numbers, investors must also monitor Bank of England commentary.

US Economic Calendar:  The Fed and the Services Sector

On Tuesday, the US housing sector will be in the spotlight. Housing sector data are leading indicators of the US economy. A deteriorating housing sector environment could impact consumer confidence and spending. Downward trends in consumer spending could raise the threat of a hard landing. Private consumption contributes over 60% to the US economy.

Economists forecast housing starts to surge 7% in February after sliding 14.8% in January. However, economists expect building permits to fall by 0.2% after a 0.3% decline in January.

On Wednesday, the Fed interest rate decision, FOMC Economic Projections, and Fed Press Conference warrant investor attention.

Recent inflation numbers have reduced bets on an H1 2024 Fed rate cut. The Economic Projections and Fed Press Conference could dictate near-term trends for the US dollar. Economists expect the Fed to leave interest rates at 5.5%.

Philly Fed Manufacturing, private sector PMIs, and weekly jobless claims will garner investor interest on Thursday. Barring a spike in jobless claims, the Services PMI will likely impact the GBP/USD more. The Services sector accounts for over 70% of the US economy and remains the main contributor to inflation.

A pickup in service sector activity could delay the timeline for a Fed rate cut. Beyond the headline PMI, investors must consider the sub-components, including prices, employment, and new orders.

Short-Term Forecast:

The near-term trend for the GBP/USD will hinge on the Fed and BoE policy decisions and forward guidance. However, the Services PMIs and UK retail sales figures will also dictate trends. A resilient UK economy and cracks in the US economy could bring the $1.29 handle into play.

GBP/USD Price Action

Daily Chart

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

A GBP/USD break above the $1.28013 resistance level would support a move to the $1.30 handle.

The Fed and the BoE warrant consideration alongside economic data from the UK and the US.

Conversely, a break below the 50-day EMA would bring the 200-day into play.

The 14-period Daily RSI at 52.70 indicates a GBP/USD return to the $1.30 handle before entering overbought territory.

4-Hour Chart

The GBP/USD sat below the 50-day EMA while holding above the 200-day, sending bearish near-term but bullish longer-term price signals.

A GBP/USD break above the 50-day EMA and $1.28013 resistance level would bring $1.30 into play.

However, a GBP/USD drop below the 200-day EMA could signal a fall through the $1.26500 handle.

The 14-period 4-Hourly RSI at 35.85 indicates a GBP/USD fall to the 200-day EMA before entering oversold territory.