In the US, the Federal Reserve (Fed) has decided to keep interest rates unchanged, in line with expectations. The decision comes as the US economy has shown stronger resilience than anticipated, leading to revised higher macroeconomic projections. The Dot Plot also indicates that the majority of members still anticipate another rate hike by the end of the year, with fewer rate cuts expected in 2024. Fed Chair Powell emphasized the central bank’s data dependency but highlighted the need for cautious decision-making to find the optimal level of rates. However, achieving a soft landing is not the current base case, although it remains a goal for the Fed.
Meanwhile, in the UK, the Bank of England (BoE) has also chosen to maintain interest rates at their current level. The central bank appears to lean towards a policy of keeping rates “higher for longer,” but it remains open to further tightening if persistent inflationary pressures arise. Recent economic data, such as the employment report showing high wage growth despite rising unemployment, has been positive. However, the latest UK CPI figures fell short of expectations across the board, and further contraction was observed in the Services sector, as indicated by the latest UK PMIs. Market expectations do not anticipate any further rate hikes by the BoE at this time.
Moving to technical analysis, in the GBPUSD currency pair, a downward trend has been observed. On the daily timeframe, the price has broken a swing level at 1.23, indicating a potential fall towards the strong support at the 1.18 level. Although the price seems overstretched at the moment, there may be a consolidation or a pullback into the moving average before the next significant movement. On the 4-hour chart, a resistance level is identified at 1.23, where various factors converge, including a trendline, Fibonacci retracement level, and the daily moving average. Sellers may enter the market at this point with defined risk, targeting the 1.18 level. However, if the price breaks above this resistance, it could invalidate the bearish setup, leading to a potential rally towards the major trendline around 1.2450. Finally, on the 1-hour chart, a divergence is observed with the MACD, suggesting weakening momentum and a possible pullback or reversal. Sellers may consider entering the market if the price pulls back into the 1.23 level, triggered by a break above the minor trendline and the 1.2220 level.
Looking ahead, upcoming events include the release of the US Consumer Confidence report, which could impact the USD if it surprises to the downside. Additionally, US Jobless Claims data scheduled for Thursday is expected to reinforce the strength of the labor market, influencing interest rate expectations. Finally, on Friday, the latest US PCE data will provide further insights into the state of the economy.