GBP/USD Forecast: Fed tone to trigger next directional movement
- GBP/USD stabilized near 1.2150 following Tuesday's volatile action.
- The Fed's statement language and Chairman Powell's comments could impact the USD's valuation.
- The pair is likely to face stiff resistance at 1.2200.
GBP/USD benefited from the improving risk mood and advanced to 1.2200 during the European trading hours on Tuesday. The renewed US Dollar (USD) strength in the second half of the day, however, forced the pair to retrace its daily advance. Early Wednesday, the pair fluctuates in a tight channel at around 1.2150 as investors gear up for the Federal Reserve's (Fed) policy decisions.
Pound Sterling price this week
The table below shows the percentage change of Pound Sterling (GBP) against listed major currencies this week. Pound Sterling was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.10% | -0.22% | 0.15% | -0.01% | 1.00% | -0.18% | 0.82% | |
| EUR | -0.11% | -0.33% | 0.05% | -0.12% | 0.89% | -0.28% | 0.71% | |
| GBP | 0.22% | 0.33% | 0.35% | 0.20% | 1.22% | 0.02% | 1.05% | |
| CAD | -0.12% | -0.04% | -0.37% | -0.16% | 0.85% | -0.33% | 0.67% | |
| AUD | 0.02% | 0.13% | -0.20% | 0.15% | 1.04% | -0.17% | 0.84% | |
| JPY | -1.02% | -0.91% | -1.16% | -0.89% | -1.04% | -1.21% | -0.18% | |
| NZD | 0.20% | 0.28% | -0.05% | 0.33% | 0.16% | 1.18% | 0.99% | |
| CHF | -0.83% | -0.72% | -1.06% | -0.68% | -0.84% | 0.18% | -1.02% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
A no change in the Fed policy rate is largely priced in. Hence, market participants will pay close attention to Chairman Jerome Powell's remarks on the policy outlook and scrutinize the statement language.
According to the CME Group FedWatch Tool, the probability of a 25 basis points rate hike in December sits at 27%. If the Fed points to impressive Gross Domestic Product (GDP) growth recorded in the third quarter and September's strong job growth as reasons to consider further tightening, the USD could outperform its rivals.
On the other hand, the USD could come under selling pressure and trigger a leg higher in GBP/USD in case the Fed goes against the dot plot and says high bond yields will eliminate the need for another rate increase.
Ahead of the Fed's policy announcements, ISM Manufacturing PMI and ADP Employment Change data for October will be featured in the economic calendar.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart continues to move sideways near 50, reflecting GBP/USD's indecisiveness.
The 100-period Simple Moving Average (SMA) aligns as immediate resistance at 1.2175 before 1.2200 (Fibonacci 23.6% retracement of the latest downtrend, 200-period SMA). A 4-hour close above the latter could attract technical buyers and open the door for an extended rebound toward 1.2260 (static level).
On the downside, first support is located at 1.2100 (static level, psychological level) before 1.2050 (end-point of the latest downtrend) and 1.2000 (psychological level, static level).
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Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
