The question of massive rate hikes by the ECB and the Fed is the main focus of investors now. This is the reason behind yesterday's rapid rise of the pound. As the European currency is recovering, other currencies are following the lead. In his speech, ECB Vice-President Luis de Guindos said that the funds rate may again be raised by 75 basis points at the next policy meeting. Moreover, the same measure can be taken at the following meetings. Such aggressive steps by the ECB are required to tackle accelerated inflation.
On Tuesday, the greenback is set to depreciate further. Inflation in the US is projected to slow down to 8.1% from 8.5%. This will be the second month of inflation slowing down in the US which is why the Fed may reconsider its tough monetary policy. There might be a twist when interest rates in Europe are rising while in the US, the pace of monetary tightening is declining. The US regulator may also want to put this process on halt. Just a few weeks ago, the situation was the opposite, and the Fed was the one to actively increase the rate while the ECB was hesitating to start. This resulted in a strong appreciation of the US dollar. At the moment, we can talk about a trend reversal.
CPI (United States):
GBP/USD rushed to the upside encouraged by a stronger euro. The pair extended an upside correction from the local low recorded in 2020. In less than a week, the British currency has gained more than 300 pips in total.
The RSI on H4 is moving along the upper boundary of the indicator at 50/70, signaling that the bullish sentiment is prevailing.
The moving averages of the Alligator Indicator on H4 are pointing upwards, thus supporting the ongoing correction. The Alligator Indicator on D1 still shows the main descending trend. There are no crossings between the two MAs.
GBP/USD outlook:
Currently, the downward movement is still relevant in the market. So, the upside correction can stay longer. The pound may well rise above the level of 1.1750.
Comprehensive analysis for the short-term and intraday time periods indicates an upward cycle which serves as a signal to buy the pound. In the medium term, indicators confirm the downtrend.