- The dollar corrects before knowing US data and the Fed’s decision.
- On Thursday the Bank of England would raise interest rates by 25 or 50 basis points.
- GBP/USD rises after falling for five days and recovers from lows since March 2020.
A dollar correction is pushing GBP/USD higher on Wednesday. The pair is trading in the 1.2100 area, with the focus on the Fed meeting. Thursday will be the Bank of England.
Recovery underway, volatility ahead
GBP/USD traded below 1.2000 on Tuesday for the first time since March 2020. After bottoming at 1.1929 it started a rally that continued into the current European session, approaching 1.2100. The pound is rising for the first time after falling for five consecutive days in which it fell 650 pips.
The market is focusing on the meetings of the FOMC and in the unscheduled European Central Bank. The Fed will announce the decision at 18:00 GMT. A rise of 50 or 75 basis points is expected. Prior to this, at 12:30 pm, the US retail sales report for May will be published, which is expected to show an increase of 0.1%.
In the run-up to this, the dollar is falling in the market, paring some of the recent rally on all fronts. The DXY falls 0.65%, and back from highs in years. Treasury yields also fell after hitting multi-year highs on Tuesday.
Thursday will be the turn of the decision of the Bank of England which is also expected to raise interest rates. The consensus is for a 25 basis point increase and part of the focus will be on the number of votes for a larger increase. A possible rise of 50 points is not ruled out.
Considering the events ahead, volatility is expected to remain elevated in GBP/USD. The next strong resistance can be seen at 1.2150, followed by 1.2210 and 1.2260. In the opposite direction, 1.2035 is now the first support followed by 1.2000 and 1.1980.
Technical levels
Source: Fx Street
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