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Outlook Ahead of the FOMC Decision

The GBP/USD pair rose to a multi-month high on Monday and then erased some of those gains. 

  • Sell the GBP/USD pair and set a take-profit at 1.2400.
  • Add a stop-loss at 1.2600.
  • Timeline: 1-2 days.
  • Buy the GBP/USD pair and set a take-profit at 1.2600.
  • Add a stop-loss at 1.2400.

The GBP/USD price has been stuck in a tight range even after the strong British housing numbers. The pair was trading at 1.2470, which was a few points below last week’s high of 1.2582. It has jumped by more than 5.7% from the lowest level in March.

The GBP/USD pair reacted mildly to a surprise report by Nationwide Building Society. The report showed that house prices jumped by 0.5% in March for the first time in eight months. It had dropped by 0.7% in March.

On a year-on-year basis, house prices in the country dropped by 2.7% after falling by 3.1% in the previous month. Therefore, there are signs that the housing sector is stabilizing even as interest rates continue rising.

The biggest catalyst for the GBP/USD pair is the upcoming interest rate decision by the Federal Reserve that will come out during the American session. This will be an important decision because of the state of the banking sector.

On Monday, First Republic Bank became the second-biggest bank to collapse in the US. As a result, many other banks like PacWest and Western Alliance have continued crashing in the past few days. On Tuesday, the two fell by double-digits.

Therefore, there is a likelihood that the bank will change its view about the American economy and interest rates. Some analysts expect it to hike by 0.25% for the third straight meeting while others expect it to leave rates unchanged.

The bank will also consider the looming US debt crisis after Janet Yellen warned that the government could run out of money in June. If the US defaults, the impact on the world economy will be dire since the country has over $31 trillion in debt.

The GBP/USD pair rose to a multi-month high on Monday and then erased some of those gains. It dropped below the important support level at 1.2500, which was the highest point on April 4. It is consolidating at the 25-period and 50-period moving averages while oscillators have pointed downwards.

Sterling is between the first support and the Fibonacci pivot point. Therefore, the pair will likely continue consolidating and then make a breakout in either direction after the Fed decision. The key levels to watch will be at 1.2400 and 1.2600.


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