To Drop to 1.1900 if This Happens

Federal Reserve officials have maintained an extremely hawkish tone this week after the US published strong jobs numbers on Friday. 

Bearish view

• Set a sell-stop at 1.2015 and a take-profit at 1.1900.
• Add a stop-loss at 1.2125.
• Timeline: 1-2 days.

Bullish view

• Set a buy-stop at 1.2065 and a take-profit at 1.2150.
• Add a stop-loss at 1.1950.

The GBP/USD price has been in an overall downward trend after peaking at 1.2453 on January 23rd. It crashed to a low of 1.1963, equivalent to a 4% decline. The pair made a brief recovery on Tuesday after Jerome Powell made his first statement after the blemish-free jobs report published on Friday.

Fed officials maintain hawkish tone

Federal Reserve officials have maintained an extremely hawkish tone this week after the US published strong jobs numbers on Friday. According to the Labor Department, the economy added over 500k jobs while the unemployment rate dropped to 3.4%. While trends in white-collar jobs is weakening, many companies are still facing labor shortages.

Therefore, in separate statements on Tuesday, several Fed officials, including Chairman Powell, reiterated that the bank will leave rates higher for longer. In his statement, Powell said that while disinflation was happening, the tighter labor conditions will make the inflation fight more challenging.

The view was in line with what Raphael Bostic of the Atlanta Fed said. He told Bloomberg that the bank will need to push rates higher than the market anticipates. Similarly, Neel Kashkari of the Minneapolis Fed said he supported more hikes in the coming months.

The will be no economic data from the United States and the UK today. Therefore, the GBP/USD pair will react to the next actions by the Fed and the BoE. In its rate decision last week, the BoE decided to hike rates by 0.50%, higher than Fed’s 0.25%. It then delivered a relatively dovish statement.

The bank cited the difficult situation of the UK economy for its dovish tilt. Recent data has shown that the UK is in a deep recession while inflation remains significantly higher. The health system is broken while labor strife is increasing. As such, more hikes will lead to elevated recession risks.