The pair will likely have a pullback later this week as bears target the key support at 1.3600.
The GBP/USD price declined for three straight weeks as investors reflected on the latest Bank of England (BOE) and Federal Reserve interest rate decisions. It is trading at 1.3675, which is a few points below last week’s high of 1.3750.
Fiscal Policies Ahead
Last week, investors focused on the monetary statements by the BOE and the Federal Reserve. As was widely expected, the two central banks decided to leave interest rates unchanged.
Unlike in the previous meetings, the two banks sounded more hawkish than in the previous meetings. The Fed hinted that it will have between 6 and 7 rate hikes by 2024, while the BOE’s governor said that more tightening was needed. It expects that inflation will rise to 4% in the next few months.
With the main monetary issues of the month done, investors will focus on the ongoing fiscal policy crisis in the United States. For one, the American government is heading for a shutdown if Congress fails to pass a budgetary measure to avert the crisis. Failure to pass the measure could push the American government to default on its obligations.
At the same time, Joe Biden faces a major challenge dealing with his $1.2 trillion infrastructure bill and the $3.5 trillion anti-poverty legislation. A wide gap has emerged between moderate and progressive Democrats about how to fund these challenges.
Meanwhile, in the UK, the government is facing a major challenge dealing with the ongoing energy crisis that has threatened to push inflation above 4%.
Later today, the GBP/USD pair will react to the latest American durable goods order numbers. The data are expected to show that durable goods orders rose by 0.7% in August after falling by 0.1% in the previous month. The core durable goods orders, which excludes the volatile food and energy products, are expected to rise by 0.5%.
The four-hour chart shows that the GBP/USD pair erased some of last week’s gains on Friday. It is trading at 1.3675, which is along the middle line of the Bollinger Bands. It is also below the Ichimoku cloud while the Relative Strength Index (RSI) has moved to the neutral level of 45.
Therefore, the pair will likely have a pullback later this week as bears target the key support at 1.3600. On the flip side, a move above 1.3700 will invalidate the bearish view.