The GBP/USD exchange rate retreated after the latest UK GDP data. It retreated to a low of 1.2930, down from the year-to-date high of 1.2988. It has risen by over 6.8% from its lowest level this year. So, what next for the GBP to USD exchange rate ahead of the Bank of England (BoE) and Federal Reserve decision?
UK GDP data and BoE decision
The GBP/USD exchange rate retreated slightly after the UK published the latest UK GDP numbers. According to the Office of National Statistics (ONS), the economy contracted by 0.1% in January, missing the analyst estimate of 0.1%. It was a big drop considering that it expanded by 0.4% in the previous quarter.
The quarterly decline translated to a YoY increase of 1.0%, lower than the median estimate of 1.2%.
More data showed that the UK manufacturing production dropped by 1.1% in January, leading to an annual decline of 1.5%. The two figures were lower than the median estimate of 0.0% and minus 0.4%.
The UK’s industrial production also continued falling during the month, a sign that the UK economy was not doing well.It dropped by 1.5% YoY in January, lower than the expected 0.4%.
Therefore, these numbers mean that the Bank of England will likely decide to slash interest rates in its meeting next week. The BoE has been one of the most hawkish central banks in the past few months, which has left interest rates higher than other central banks.
Tariff concerns and Federal Reserve decision
The main driver for the GBP/USD exchange rate has been the actions of Donald Trump, who has started a trade war among US allies and foes. He has added major tariffs on most imports, a move that will likely lead to a self-inflicted recession in the US and other countries.
Trump has not yet added tariffs on UK goods, but he is likely to do so in April. He has hinted that he will implement reciprocal tariffs next month. On the positive side, the UK does not have big tariffs on UK goods, meaning that it may not be all that affected.
The next key catalyst to watch next week will be the upcoming Federal Reserve interest rate decision.
Economists expect the bank will leave interest rates unchanged and point to three cuts later this year to wade off potential recession risks. The potential dovish tilt will be different from what the bank did in the last meeting, when it hinted that it would deliver just two cuts this year.
The FOMC decision happens as the US dollar index (DXY) and US bond yields have plunged to their lowest level in weeks.
GBP/USD technical analysis
The daily chart shows that the GBP/USD pair has been in a strong bull run in the past few months. This performance happened after it dropped to a low of 1.2110 in January.
The pair has moved above the 50-day and 200-day Weighted Moving Averages (WMA), a positive thing. It has moved to the 61.8% Fibonacci Retracement level, while oscillators like the Relative Strength Index (RSI) and the MACD have all pointed upwards.
Therefore, the pair will likely continue rising as bulls target the next key resistance point at 1.3155, the 78.6% Fibonacci Retracement level and 1.7% above the current level. A move below the support at 1.2900 will invalidate the bullish view.
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