GBP/USD forecast: More upside expected in January 2022

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 Jan 1, 2022
  • The GBP/USD has bounced back in the past few months.
  • The Bank of England and Federal Reserve have turned hawkish recently.
  • We explain why the pair could rise in January 2022.

The British pound (GBP/USD) outperformed other major currencies in 2021 as the UK economy recovered at a faster pace than other comparable economies. The pair ended the year at 1.3531, which was about 4.95% below the highest level in 2021.

GBP/USD review

The GBP/USD declined in 2021 as concerns on Brexit eased and as the UK economy recovered faster than other countries. 

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The country’s economic recovery happened mostly because of its response to the Covid-19 pandemic. It was the first country to start vaccinations in December 2020.

At the same time, 2021 was the full year in which the UK was out of the European Union. While the arrangement with the EU had some issues, especially about Northern Ireland, the country’s performance was relatively strong.

In 2022, the focus among investors will be the Omicron variant and the US and UK political environment. Recent data shows that the number of Omicron cases in the two countries is surging. 

For example, the UK confirmed more than 180k cases on Friday while the seven-day average was about 159k. On the same day, the US confirmed more than 443k cases while the seven-day average has risen to 384k. 

The other catalyst for the GBP/USD will be the latest interest rate decision by the Bank of England (BOE) and the Federal Reserve. 

In December, the BOE surprised analysts when it hiked interest rates by 0.25% in a bid to tame the rising inflation. Therefore, with the Covid-19 restrictions rising, there is a possibility that inflation in the UK will keep rising. As a result, the BOE will likely continue with its hiking cycle.

The pair will also react to the latest actions by the Federal Reserve. The Fed has already hinted that it will hike interest rates three times in 2022.

GBP/USD forecast

GBP/USD

The daily chart shows that the GBP/USD pair has been in a bullish trend in the past few days. The pair has managed to move from the lower side of the descending channel and is approaching the upper side. The pair has also moved slightly above the 25-day and 50-day moving averages and the 50% Fibonacci retracement level. The Relative Strength Index (RSI) is also approaching the overbought level of 70 while the MACD has been rising as well. Therefore, the pair will likely keep rising in January as bulls target the upper side of the channel.

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