GBP/USD Forecast: Recession Looms After UK’s GDP Contraction in Aug

• Britain’s GDP fell by 0.3%, more than investors had anticipated.
• Economists expect BoE to continue aggressively despite poor GDP data.
• Markets are questioning BoE’s resolve to end the bond-buying program on Friday.

Today’s GBP/USD forecast is bearish. Britain’s economy appears to be headed for a recession after data revealed it unexpectedly contracted in August. It highlights the difficulty for Prime Minister Liz Truss to keep her commitment to accelerate growth.

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A 0.3% decline in GDP from July was caused by weak manufacturing and maintenance activity in North Sea oil and gas facilities. The study also revealed how consumers were affected by increased prices.

However, economists do not anticipate that the BoE will be discouraged from continuing to hike rates to contain a significant rise in inflation this year despite weaker-than-expected growth.

Analysts anticipate a rate increase of 75 basis points at the next meeting, with a potential rate increase of 100 basis points if finance minister Kwasi Kwarteng does not present a clear budget plan by October 31.

On Wednesday, the British pound recovered from a two-week low as investors questioned the Bank of England’s resolve to cease emergency asset purchases on schedule amid rumors indicating the BoE would extend purchases should market conditions warrant.

“It’s inconceivable that if these levels of market stress in the bond market continue, the Bank of England is not going to continue to provide at least some support.” eToro global markets strategist Ben Laidler said.

GBP/USD key events today

Investors are awaiting CPI data from the United States. The Consumer Price Index (CPI) tracks changes in the prices of products and services as seen through the eyes of the consumer. It is an important tool for assessing changes in inflation and purchasing habits. It will therefore inform the Fed’s next move.

GBP/USD technical forecast: 30-SMA resistance in play

Looking at the 4-hour chart, we see the price trading slightly below the 30-SMA and the RSI below 50. Bulls have managed to push the price to the 30-SMA. However, the trend remains bearish. The SMA has stopped bulls before and might do so again. If this happens, the price will likely fall to the next support level at 1.0809.

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The trend will change if the price breaks above the 30-SMA and the 1.1202 resistance level to make a higher high. Until that happens, the bias remains bearish.

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