- Sell the GBP/USD pair and set a take-profit at 1.2250.
- Add a stop-loss at 1.2400.
- Timeline: 1-2 days.
- Set a buy-stop at 1.2365 and a take-profit at 1.2450.
- Add a stop-loss at 1.2280.
The GBP/USD price soared to the highest point since December and then pulled back as recession risks rose. It rose to a high of 1.2438, which was sharply higher than the year-to-date low of 1.1845. The pair has been in a spectacular rally in the past few months, having risen by over 10% from its lowest level in 2022.
Recession risks rise
The pound-to-dollar exchange rate rose on Wednesday after the UK published the December inflation data. According to the Office of National Statistics, inflation remained at an elevated level, giving the Bank of England (BoE) the impetus it needs to continue hiking rates. The headline CPI remained unchanged at 0.4% on a MoM basis and dropped slightly to 10.5% on a YoY basis.
Core inflation rose from 0.3% in November to 0.5% in December. It remained unchanged at 6.3% on a YoY basis. These numbers came a day after the UK published strong job numbers. Wages with and without bonuses rose by 6.4% while the unemployment rate remained at the lowest point in years.
Therefore, with inflation at an elevated level and wage growth continues, there is a likelihood that the Bank of England (BoE) will continue hiking interest rates this year. It will also be more hawkish than the Federal Reserve, which seems to be winning its battle against inflation.
The GBP/USD pair pulled back after the US published weak retail sales data. Retail sales dropped by 1.1% in December as inflation concerns remained. It increased by 6.02% on a year-on-year basis. Core sales also declined by 1.1%.
Another catalyst was the rising worries of a recession as tech giants announced major layoffs. Microsoft will slash 10,000 jobs as PC sales drop. Other giant companies that have announced large-scale layoffs are Meta Platforms, Goldman Sachs, Salesforce, and Amazon.
The GBP/USD price rose to a high of 1.2445 and then pulled back as recession fears remained. It dropped to a low of 1.2337, which was slightly below the second resistance of the standard pivot point. The pair remains above the 25-day and 50-day moving average and the upper side of the ascending channel.
It has also formed a bearish engulfing pattern on the 4H chart. Therefore, the pair will likely continue falling with the next key level to watch being at 1.2250. The pair will then resume the bullish trend.