GBP/USD Forex Signal: Sterling Caught in the Back Foot

Bearish view

• Sell the GBP/USD pair and set a take-profit at 1.2750.
• Add a stop-loss at 1.2940.
• Timeline: 1-2 days.

Bullish view

• Set a buy-stop at 1.2840 and a take-profit at 1.2900.
• Add a stop-loss at 1.2785.

The GBP/USD pair slumped in the overnight session as concerns about the British economy continued as the Fed prepared to deliver its July interest rate decision. It dropped to a low of 1.2830, its lowest swing since July 10.

UK economy concerns

The GBP/USD pair dropped after Chancellor Rachel Reeves warned about the UK economy. In a statement, she warned that the country’s finances were weaker than expected and suggested that she would raise taxes to plug in a £22 billion budget gap.

Recent economic numbers have sent mixed picture about the British economy. Inflation has fallen to the Bank of England’s target of 2.0% while the economy has avoided a hard landing.

Therefore, analysts believe that the Bank of England will opt to cut interest rates by 0.25% on Thursday. If this happens, it will be the first time that the bank has slashed rates in years and a sign that it has won its battle against inflation.

The GBP/USD pair will next react to the ADP jobs report from the United States. Economists polled by Reuters expect the data to show that the private sector created 147,000 jobs in July after adding 150,000 in the last month.

The data comes a day after the Conference Board published a positive consumer confidence report. Its data showed that confidence rose slightly to 100.3 in July from the previous 97.3 in June.

The most important event on Wednesday will be the Federal Reserve interest rate decision. Economists expect the bank to leave rates unchanged in this meeting. Officials will welcome the last three inflation reports, which showed that consumer prices continued moving downwards.

The bank is now more focused on the labor market where the jobless rate has risen to its highest point since 2021. The upcoming NFP data will show whether the situation is improving.

GBP/USD technical analysis

The GBP/USD pair has been in a downward trend after peaking at 1.3043 last week. On the daily chart, the pair has moved below the key support at 1.2892, its highest level on March 8th.

It has dropped below the second support of the Woodie pivot point. The Relative Strength Index (RSI) and the Money Flow Index (MFI) have all pointed downwards and dropped below the neutral point. Therefore, the pair will likely continue falling as sellers target the Woodie pivot point at 1.2690.

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