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GBP/USD Forecast: Pound a long way from a rebound on BOE's recession warning

  • GBP/USD has slumped below 1.2300 for the first time in nearly two years.
  • Safe-haven flows dominate financial markets ahead of the weekend.
  • US Bureau of Labor Statistics will release the April jobs report later in the day.

GBP/USD has recovered modestly after having slumped to its weakest level in nearly two years below 1.2300 early Friday. The pair, however, is unlikely to stage a steady rebound in the near term after the Bank of England's dire recession warning on Thursday.

Following its decision to hike the policy rate by 25 basis points (bps) to 1%, the BOE noted that the UK economy could go into recession in 2022 with inflation rising above 10% amid surging energy prices. The bank also refrained from providing any details on the quantitative tightening plan, saying that they would unveil a plan at the August meeting. 

BOE Quick Analysis: The R-word bursts out, and the pound plunge is far from over.

The BOE's gloomy outlook suggests that the policy divergence between the Fed, which is on track to hike its policy rate by 50 bps in the next couple of policy meetings, is likely to widen. Hence, the fundamental outlook is likely to continue to favour the dollar over the pound, limiting the GBP/USD's gains to technical corrections.

Later in the session, the US Bureau of Labor Statistics will release the April jobs report. The headline Nonfarm Payrolls (NFP) is expected to come in at 391,000, following March's print of 431,000. Investors will pay close attention to the wage inflation data, as measured by the Average Hourly Earnings, as well. Unless these data cause the market mood to improve, the dollar is likely to preserve its strength ahead of the weekend. Meanwhile, US stock index futures are down between 0.2% and 0.5%.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the four-hour chart stays near 40, confirming the view that sellers remain in control of the pair's action. On the upside, 1.2400 (psychological level) aligns as the next resistance before 1.2430 (static level, former support) and 1.2460 (20-period SMA).

In case safe-haven flows start dominating the markets in the second half of the day, the pair could test 1.2300 (psychological level) and extend its slide toward 1.2275 (daily low) and 1.2250 (static level coming from June 2020).

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Author

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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