GBP/USD forecast: focus shifts to BOE after the hawkish Fed 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 Sep 22, 2021
  • The GBP/USD rose after the Fed delivered a hawkish decision.
  • The bank left rates unchanged but pointed to 6-7 rate hikes through 2024.
  • It also pointed to a possible tapering later this year.

The GBP/USD rose after the latest Federal Reserve interest rate decision. The pair rose to 1.3680, which was higher than Wednesday’s low of 1.3617. Focus now shifts to the Bank of England (BOE) decision scheduled for Thursday.

Bank of England preview

The BOE will conclude its two-day monetary policy meeting on Thursday. Analysts expect that the bank will deliver a relatively hawkish interest rate decision while sounding cautious. Precisely, the bank will leave its main interest rate unchanged at 0.10%.

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Some analysts believe that the central bank will hint that it will terminate its quantitative easing program before it is scheduled to expire in December. 

These BOE officials argue that continuing the asset purchases will not help accelerate the economy. Besides, the country is currently facing challenges that the BOE cannot fix adequately like supply chain challenges and labour shortages. 

Other BOE officials will recommend maintaining the asset purchases until the end in a bid to support the country bounce back.

The BOE decision comes at a time when the UK economy is showing signs of a strong recovery. The unemployment rate has declined while inflation has risen to more than 3%. Therefore, some policymakers will likely say that the current jump in consumer prices was transitory. In a recent statement, Andrew Bailey said that there were two camps in the committee. 

The GBP/USD is also reacting to the Federal Reserve decision. The central bank decided to leave its interest rates unchanged between 0% and 0.25%. The bank will also continue with its $120 billion per month quantitative easing (QE) policy. 

However, the policy members hinted that it will start tapering in the coming months. The dot plot showed that the bank expects that interest rates will have 6 to 7 rate hikes by 2024.

GBP/USD forecast

GBP/USD

The GBP/USD tilted upwards after the latest FOMC interest rate decision. The pair is trading at 1.3665, which was slightly above this week’s low of 1.3620. On the four-hour chart, the pair is still below the short and longer-term moving averages. It has also formed what looks like a double-bottom pattern. Therefore, there is a likelihood that it will hold steady ahead of the BOE decision.

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