The GBP/USD price has been in a strong sell-off in the past few weeks as investors worry about the UK economy.
- Buy the GBP/USD and set a take-profit at 1.1600.
- Add a stop-loss at 1.1400.
- Timeline: 1 day.
- Set a sell-stop at 1.1450 and a take-profit at 1.1350.
- Add a stop-loss at 1.1520.
The GBP/USD pair pulled back slightly after slipping to the lowest level since 1985. The pair dropped to a low of 1.1408, which was about 7.28% below its August high. It then pulled back slightly in the overnight session after the Fed published its Beige Book.
UK economic outlook dims
The GBP/USD price has been in a strong sell-off in the past few weeks as investors worry about the UK economy. Analysts believe that the country is at risk of a major recession in the coming months as the energy squeeze continues.
Lizz Truss, the new Britain Prime Minister is expected to launch a major stimulus to offset the soaring gas prices. Analysts expect that the cost of this spending will be over 200 billion pounds. Therefore, there are concerns that this spending will significantly widen the budget deficit at a time when the Bank of England (BoE) is expected to continue hiking interest rates.
Meanwhile, the GBP/USD pair rose slightly after the Fed published its Beige Book. The report warned that the economy will decelerate in the coming months. It nonetheless hinted that inflation will continue falling in the near term. The statement added:
“The outlook for future economic growth remained generally weak, with contacts noting expectations for further softening of demand over the next six to twelve months.”
There will be no economic data from the UK on Thursday. Therefore, the GBP/USD pair will react to any news from the new UK administration. The other key catalyst will be a statement by Jerome Powell. In it, he will likely reiterate that the Fed will continue hiking interest rates in the coming months.
This view will be in line with what Fed’s Rael Brainard said on Wednesday. In an interview with the Financial Times, she said that more hikes are needed in the next few months. As a result, analysts expect that the bank will hike by 0.75% in September.
The GBP/USD pair crashed to the lowest level since 1985 on Wednesday. It then rebounded slightly as the US dollar pulled retreated slightly. On the four-hour chart, it has formed a bullish engulfing pattern, which is usually a positive sign.
The pair has moved below the standard pivot point and the 25-day and 50-day moving averages. Therefore, the pair will likely continue rising as buyers target the next key resistance level at 1.1600.