GBP/USD forecast: here’s why the sterling is rising

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 Oct 7, 2021
  • The GBP/USD pair held steady as investors price in rate hikes by the BOE.
  • The BOE’s Chief Economist hinted that higher rates were necessary.
  • The pair will next react to the latest US non-farm payrolls data.

The GBP/USD pair tilted higher as investors reflected on the rising hopes that the Bank of England (BOE) will start tightening sooner than expected. The pair rose to a high of 1.3635, which was about 1.65% above the lowest level this week.

BOE to hike rates?

The Bank of England held its most recent meeting in September. As was widely expected, the central bank decided to leave its monetary policy tools intact. It left its interest rates and quantitative easing policies unchanged. 

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However, the bank hinted that it will start tightening soon considering that the UK economy is doing relatively well. It also predicted that inflation will rise to a high of 4% and then start normalizing to about 2%.

Now, the situation has changed considerably and there are odds that the bank will start tightening sooner than expected. For example, a fuel shortage has come up while energy costs have started to skyrocket. As such, some analysts believe that inflation will rise above the BOE target of 4% and move to about 6% in the near term.

Therefore, some policymakers expect that the bank will move quicker than expected. In his first public statement, Huw Pill, the new Bank of England economist said that interest rate hikes will help to rebalance the economy.

There are additional risks that have emerged. For example, data published on Thursday showed that the UK home prices continued rising in September. According to Halifax, home price growth rose by 1.3% in September, the highest level since 2007. This monthly gain led to a year-on-year increase of 7.4%. 

The next key catalyst for the GBP/USD will be the US non-farm payroll numbers that are scheduled for Friday. The numbers are expected to show that the economy added more than 500k jobs while the unemployment rate declined to 5.1%.

GBP/USD forecast

GBP/USD

The hourly chart shows that the GBP/USD pair has been in a strong bullish trend in the past few days. This price action has seen it rise above the 38.2% Fibonacci retracement level. It has also moved above the 25-day and 50-day moving averages. Therefore, with the US default risks postponed, the pair will likely keep rising as bulls target the 50% retracement at 1.3665.

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