Downside Risks But Brief Rally Likely

The pair will likely maintain the bearish trend although a brief rebound is expected.

Bullish View

• Buy the GBP/USD pair and set a take-profit at 1.2700.
• Add a stop-loss at 1.2450.
• Timeline: 1-2 days.

Bearish View

• Set a sell-stop at 1.2580 and a take-profit at 1.2500.
• Add a stop-loss at 1.2650.

The GBP/USD pair is falling for the fifth straight day as worries about the next actions by the Bank of England (BOE). It crashed to a low of 1.2595, which was the lowest level since July 2018. Sterling has plummeted by more than 12% from its highest point last year.

Sterling Continues Plummeting

The GBP/USD pair continued its downward trend as concerns about the diverging paths between the Bank of England (BOE) and the Federal Reserve continued. There are signs that the UK economy is slowing as evidenced by last week’s weak retail sales data.

The numbers revealed that the country’s retail sales crashed hard in March in a sign that inflation was having an impact on consumer spending. On the same day, Gfk released weak consumer confidence numbers.

Therefore, investors expect that the BOE will slow its rate hike process as it observes the impacts of the first three. On the other hand, the Fed has taken a different route. Most analysts expect that the bank will continue hiking interest rates. Indeed, expectations are that the bank will deliver several 0.50% hikes this year.

Meanwhile, data by the Office of National Statistics showed that government borrowing declined by half to 151.8 billion in 2021. This was significantly lower than the previous year’s increase of 317 billion pounds. The data was worse than what the OBR was expecting.

In the US, the Fed is more focused on the rising inflation even as other data sent some warnings about the economy. For example, on Tuesday, data by the Conference Board revealed that consumer confidence declined to 107.3 in April. Analysts were expecting that confidence rose modestly in that period. Further numbers showed that new home sales declined sharply in March.

GBP/USD Forecast

The GBP/USD pair crashed hard as demand for the British pound declined. On the four-hour chart, the pair has dropped below the important support at 1.2985, which was the lowest level this month. It has also dropped below the 25-day moving average while Bollinger Bands have widened.

The Stochastic oscillator has declined to the oversold level while the MACD has moved below the neutral level. Therefore, the pair will likely maintain the bearish trend although a brief rebound is expected. If this happens, the key target to watch will be at 1.2700.