Since the beginning of the week, the GBPUSD currency pair has been demonstrating a bearish character amid the strengthening of the U.S. dollar and Treasury bond yields. This movement intensified after the aggressive remarks from Federal Reserve System (FRS) Chairman Jerome Powell.
On Thursday, Fed officials, including Powell, didn't show confidence in the ability of current U.S. interest rate levels to fight inflation. This lowered market expectations that the peak of monetary tightening would soon be reached. Traders changed their forecasts, assuming that the first interest rate cutting by the Fed will take place in June next year, rather than in May.
In response to the central bank governor's remarks, yields on 10-year Treasury bonds and the U.S. dollar rose from more than one-month lows.
Meanwhile, Thursday's data showed that new jobless claims fell last week. This indicates a continued low level of layoffs even with a slowdown in the labor market, which had previously been quite active.
Meantime, on the other side of the ocean, the Bank of England's chief economist Hugh Pill is calls for a restrictive monetary policy. In his opinion, raising interest rates is not necessary to curb inflation, it is important to keep them at current levels. Market expectations of a possible cut in the Bank of England interest rate in mid-2024 are not considered unreasonable.
However, he believes that the probability of changes in the next nine months is extremely low, considering the current global situation. At the same time, Pill warns that an extremely long support of restrictive policy from the British regulator may cause a recession.
The British pound may come under pressure if Bank of England officials heed the words of the chief economist.
GBPUSD quotes are forming a broad correction on the H4 timeframe.
In terms of wave analysis, the price is forming the third descending wave on the hourly timeframe. The breakthrough of the top of the first wave at the level of 1.2240 has already occurred. The downward movement may intensify in the near term.
Short-term prospects for GBPUSD are to sell.
The target at the level of 1.2070
Part of the profit should be taken near 1.2155
A stop-loss could be set at 1.2330
The bearish trend has a short-term character, so the trade volume should not be more than 2% of your balance.