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GBP/USD Forex Signal: Fed and BoE Divergence Points to a Pullback – 07 November 2022


The Fed signaled that it will continue hiking rates, albeit at a slower pace than expected.


Bearish view

Sell the GBP/USD pair and set a take-profit at 1.1115.Add a stop-loss at 1.1500.Timeline: 1-2 days.

Bullish view

Set a buy-stop at 1.1492 and a take-profit at 1.1550.Add a stop-loss at 1.1400.

The GBP/USD price pulled back after falling to the lowest level since October 21st. It was trading at 1.1371, which was much slightly above last week’s low of 1.112. This price is also below this month’s high of 1.1653.

BoE and Federal Reserve

The GBP/USD price reacted to the latest interest rate decision by the Bank of England (BoE) and the Federal Reserve. As was widely expected, the BoE and the Fed continued their hawkish tone in a bid to fight the soaring inflation.

In its statement, the BoE hiked interest rates by 0.75% and signaled that borrowing costs will not rise as much as what the market was expecting. The 75 basis hike was its biggest in more than three decades. It took rates to 3%, the highest level since 2008.

Therefore, the market interrupted that as being a more dovish tone. The BoE’s rate hike and statement diverged with what the Federal Reserve said. In its statement, the Fed hiked rates by 75 basis points and hinted that they will remain high for a longer period.

The Fed signaled that it will continue hiking rates, albeit at a slower pace than expected. Analysts are now pricing in a situation where the bank hikes by 0.50% in December.

The GBP/USD tilted higher after the US published strong jobs data. According to the Bureau of Labor Statistics (BLS), the American economy added over 261k jobs in October after it added 315k in September. On average, the American economy added 407k this month compared to 562k in 2021. The unemployment rate rose to 3.7%

The next key catalyst for the GBP/USD will be the outcome of Tuesday’s mid-term elections in the United States. Polls show that Republicans could retake the two chambers in Washington. The pair will also react to the latest American inflation data.

GBP/USD forecast

The four-hour chart shows that the GBP/USD price tilted upwards in the overnight session. It rose to the first support of the standard pivot point and is at the 50-day exponential moving average. The Relative Strength Index (RSI) has moved slightly above the neutral point. The pair is also slightly below the important resistance point at 1.1493.

Therefore, there is a possibility it will resume the bearish trend as sellers target last week’s low at 1.1120. The stop-loss of this trade is at 1.1500.

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