Trading Volatility: GBP/USD on US, UK rates
The disturbance around GBP/USD is expected over two days next week with the US rate decision on Wednesday and the UK the day after.
IGTV’s Jeremy Naylor looks at the potential for a short sterling position with a view to breaking the close line of support at $1.2038. If and when this goes, there’s a further re-grouping the trade around the new lower price target of $1.1805.
(AI Video Transcript)
The Federal Reserve and the Bank of England
Next week, there are two important decisions coming up about interest rates. One is from the Federal Reserve (Fed) in the US, and the other is from the Bank of England (BoE). Experts think that both banks will keep the interest rates the same. This is because government officials and the financial markets have hinted at this. As a result, the USD is expected to do better than the British pound.
The US economy
The US economy is doing well right now. We know this from the recent economic data. This means the Fed can keep the interest rates where they are. Some people think there might be a small increase of 25 basis points, but most don't expect this to happen at the upcoming meeting. However, the Fed might adopt a more strict approach, which could make the US dollar stronger compared to the GBP.
The UK economy
On the other hand, the UK economy is not as strong as the US. People believe that the BoE not only won't change the interest rates, but they may also indicate that inflation and economic growth could go down even more. Because of these reasons, it may be a good idea to bet against the pound and in favor of the US dollar.
GBP/USD
Right now, the exchange rate is about 1.20-1.20. But if the price goes above 1.22, it might go all the way up to 1.20-1.38. If it keeps going up, the next level of support would be at 1.18-1.05, which was the lowest point on March 8th.
To sum it up, because of the interest rate meetings, it's recommended to bet against the pound and in favor of the US dollar. The US economy is strong and the Fed might adopt a stricter approach, which would make the US dollar even stronger. On the other hand, the UK economy is not doing as well, which could hurt the pound.
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