GBPUSD keeps correcting due to similarity of Fed and BOE monetary policies

20 February 2024 75
GBPUSD keeps correcting due to similarity of Fed and BOE monetary policies

On Tuesday, a downward correction is observed in the GBPUSD currency pair. It is caused by strong inflation pressure in the US economy, which reinforces the market's expectations that the Federal Reserve (Fed) will keep interest rates at high levels for a prolonged period of time.


The US regulator's and the Bank of England's policies are similar and both aim to curb inflation by maintaining tight monetary conditions.


The UK consumer index remained at 4% last week, far from the regulator's target of 2%.


According to Andy Haldane, former chief economist at the BOE, the central bank may worsen recession if it does not cut rates soon. In his opinion, the economy is heading towards a period of very weak growth next year, judging by current forecasts.

Meanwhile, US officials are not ready to ease monetary policy quickly.


According to San Francisco Fed President Mary Daly, despite the progress in fighting US inflation, further actions are needed to ensure price stability.


At the same time, Raphael Bostic from Atlanta's Fed signaled a possibility of rate cuts this summer, although he noted the necessity of more inflation data.


In the meantime, traders have shifted their expectations of monetary policy easing in the US from March to June. According to the CME FedWatch tool, the market currently estimates the likelihood of rate cuts in June at 74%.


GBPUSD quotes approached the correction channel support on the H4 timeframe. The Stochastic Oscillator (standard values) is in the oversold zone. The pair's price, pulling back from the support, may resume its growth within the correction channel.

 

Signal:

The short-term outlook for the GBPUSD pair suggests buying

The target is at the level of 1.2775.

Part of the profit should be taken near the level of 1.2685.

A Stop-loss could be set at the level of 1.24750.


The bullish trend is short-term, so trade volume should not exceed 2% of your balance.

This content is for informational purposes only and is not intended to be investing advice.

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