GBP/USD Price Forecast: Fails near 1.3500 as bears eye 200-SMA ahead of Fed decision
- GBP/USD struggles to capitalize on a modest intraday uptick to the 1.3500 neighborhood.
- Fed hike bets, elevated US bond yields and geopolitics underpin the USD, capping the pair.
- Bears await a break below the 200-day SMA as the focus remains on the crucial Fed decision.
The GBP/USD pair attracts fresh sellers following an intraday uptick to the 1.3500 neighborhood and drops to the lower end of its daily range during the first half of the European session on Wednesday. Spot prices currently trade around the 1.3470-1.3465 region, just above a one-month low touched on Tuesday, as traders keenly await the outcome of a two-day FOMC meeting.
Heading into the key central bank event, growing acceptance that the US Federal Reserve (Fed) will stick to its hawkish stance amid oil-driven inflation risks and elevated US bond yields acts as a tailwind for the US Dollar (USD). Apart from this, escalating tensions in the Middle East underpin the safe-haven buck, capping the GBP/USD pair, which fails to benefit from the expected rise in UK consumer inflation.
Spot prices sit near the 38.2% Fibonacci retracement, while remaining above the 200-day Simple Moving Average (SMA) at 1.3455 and the 50.0% retracement at 1.3406. The latter should act as a key pivotal point, which, if broken, will be seen as a fresh trigger for GBP/USD bears. Meanwhile, momentum oscillators hint at the risk of a shallow consolidation rather than a strong continuation higher in the near term.
Meanwhile, weakness below the 200-day SMA at 1.3455 should pave the way for deeper pullbacks toward the 50.0% retracement at 1.3406 and the 61.8% level at 1.3343. A break below the latter would negate the broader bullish structure. On the topside, initial resistance is seen at the 23.6% Fibo. retracement around 1.3548, with a stronger barrier at the recent swing high around the 1.3675 region.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
GBP/USD daily chart
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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