The upcoming week promises to be a tumultuous seven days for the financial market because the Fed Reserve and the Bank of England are to make important announcements regarding interest rate hikes.
Analysts expect the Fed to slow the rate increases with a quarter-point rate hike, while other analysts predict the Bank of England to take a more aggressive stance with a half-point rate hike.
The BoE’s Decision on Rate Hikes
The economic data released in the past week will be a prime consideration by the BoE when making its decision. The policymakers will closely observe and examine factors such as inflation and employment data to determine the overall economic health and if rate hikes are warranted.
They will also consider the market expectations, as a surprise decision could lead to significant volatility in the pound’s value. Overall, while the current market pricing suggests a 50 basis point hike, the possibility of a split vote and the consideration of other economic factors may lead to uncertainty and potential volatility in the pound’s value.
The Federal Reserve is closely watching the inflation rate and the state of the labor sector as it decides its next move on interest rates, with a 5% final rate target for 2023. So keep an eye on the Non-Farm Payroll report, wage statistics, and ISM services data to understand the economy’s state.
The Non-Farm Payroll report, Wage statistics, and ISM services data are indicators of the health of the US economy. The Non-Farm Payroll report provides a snapshot of jobs created in the economy, wage statistics give insight into American workers’ wages, and the ISM services data indicate the overall health of the services sector in the US economy.
These indicators give insight into the purchasing power of consumers, the labor market’s health, and industries such as retail, healthcare, and transportation. For example, a strong report would suggest that the US economy is creating jobs at a healthy pace, while a weak report would indicate the labor market is struggling.
The fluctuation of the British pound and the US dollar’s exchange rate has been a common manifestation in recent weeks, with both currencies reaching their peak in December last year. However, despite the ongoing fluctuations, buyers have been unable to break through the resistance level and push the price higher. Next week’s economic data, such as GDP and employment figures, may provide a turning point for breaking through this resistance.
On the other hand, sellers are busy observing a technical pattern called the rising wedge formation. This pattern is often seen as a potential reversal of the current upward trend, indicating that the currency pair may be due for a downward correction.
Additionally, the Relative Strength Index (RSI), a technical indicator utilized to measure the strength of a currency, is approaching overbought territory, further reinforcing the possibility of a price drop. However, if the currency pair surpasses the resistance level of 1.2500, it may invalidate the rising wedge formation, signaling upward movement.
The IG Client Sentiment Data (IGCS) measures the sentiment or outlook of retail traders, providing insight into the current market trend. According to the IGCS, over 55% of retail traders hold short positions on the GBP/USD currency pair. An indication that traders expect the pair’s value to decrease in the coming months.