GBP/USD Forecast: Fed to Continue Rate Hikes Above 5%

• The Federal Reserve maintained its hawkish tone after hiking by half a percentage point.

• The Fed will continue to raise interest rates in 2023.

• Inflation in the UK decreased more dramatically than anticipated in November.

Today’s GBP/USD forecast is slightly bullish. The dollar suffered on Thursday even though the Federal Reserve maintained its hawkish tone after hiking rates by half a percentage point. Investors were still determining the extent to which the central bank would be willing to slow down the economy to reduce inflation.

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Despite the possibility of an American recession, according to Fed Chair Jerome Powell, the Fed will continue to raise interest rates in 2023. Rates are projected to reach a peak above 5%.

That did little to keep the greenback’s initial rise going.

In early Asian trading on Thursday, the pound was trading near its six-month highs against the dollar after reaching those levels in the previous session.

Although Powell’s speech and the Fed’s widely anticipated 50 basis point rate increase gave the dollar a boost, it later gave back some of those gains as markets thought about the dimming growth prospects in the biggest economy in the world.

Inflation in the UK decreased more dramatically than anticipated in November, from a 41-year high of 11.1% in October to 10.7%.

A steeper decline in inflation last month than anticipated was seen in both the US and the eurozone, which gives reason for optimism that the current inflationary wave may have reached its peak.

GBP/USD key events today

Investors expect the Bank of England to deliver a 50bps rate hike later today. They will also pay attention to data from the US, including retail sales and initial jobless claims.

GBP/USD technical forecast: Prices look set to retest the 30-SMA support

Looking at the above chart, we see the price pushing lower after failing to break above the 1.2425 resistance a second time. The trend is bullish as the price is trading above the 30-SMA. The RSI is trading above 50, which supports bullish momentum. It, however, shows a slight bearish divergence that could spell trouble for the bullish move. 

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This small sign of weakness might allow bears to return and retest the 30-SMA and the 1.2300 level as support. The price might go down to the 1.2109 support level if bears break below the 30-SMA.

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