GBP/USD forecast ahead of the FOMC interest decision

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Jul 28, 2021
  • The GBP/USD pair held steady below a key resistance ahead of the FOMC decision.
  • The bank is expected to leave its pandemic response tools unchanged.
  • The pair also reacted to the relatively weak UK house price index data.

The GBP/USD price was little changed as investors waited for the latest Federal Reserve decision. It is trading at 1.3877, which was about 2.30% above the lowest level last week.

UK economy slowing

The GBP/USD pair wavered after the recent data showed that the country’s housing sector was starting to slow down. According to the Nationwide Society, house prices declined by 0.5% in Jul after they rose by 0.7% in the previous month. This increase was lower than the median estimate of a 0.6% increase. As a result, the prices rose by 10.5% on a year-on-year basis. This was lower than the estimated 12.1% and the previous month’s increase of 13.4%. 

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The weakness in house prices happened mostly because of the recent decision by the government to get rid of the stamp duty waiver. Analysts expect that the falling trend will continue in the near term since most people who wanted to buy a home already bought. Additionally, prices are still more than 20,000 pounds higher than before the pandemic started. The Bank of England will publish the latest mortgage data on Thursday.

The GBP/USD pair will next react to the latest Federal Reserve interest rate decision that will come out during the American session. Economists expect that the bank will leave its interest rate unchanged between 0% and 0.25%. The bank expects to raise rates in 2023. 

The key issue during this meeting will be tapering. Analysts expect that Jerome Powell will have a neutral outlook considering that the US is seeing another wave of coronavirus. This wave is affecting people who have been vaccinated and the unvaccinated. Before the new outbreak, most analysts expected the bank to signal when it will start tapering during this meeting.

GBP/USD forecast

GBP/USD

The four-hour chart shows that the GBP/USD has bounced back substantially in the past week. Along the way, the pair has moved above the 50-day and 100-day moving averages while oscillators like the Relative Strength and Vigor index have tilted upwards. It is also approaching the next key resistance at 1.3900. 

Therefore, the pair will likely keep rising towards the FOMC decision. Still, since a dovish Fed has already been priced-in, there is a possibility that the pair will decline even when the bank sounds dovish.

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