• Higher interest rates in the US are boosting the dollar.
• The UK might be in a technical recession as the economy continues shrinking.
• The pound’s collapse might continue as recession fears grow.

The GBP/USD weekly forecast is bearish as the pair will likely continue falling, with the UK economy expected to shrink further.

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Ups and downs of GBP/USD

The Federal Reserve increased interest rates on Wednesday for the third time in a row by 75 basis points to raise borrowing costs high enough to lower inflation, which has reached a 40-year high.

The objective is to encourage businesses and households to reduce spending to lower the demand for products, services, and labour and ease upward pricing pressure. This has pushed the dollar to new highs and weighed on the pound.

On Thursday, the Bank of England increased its benchmark interest rate from 1.75% to 2.25%. It declared that it would continue to “act strongly, as necessary,” against inflation, although the country’s economy has entered a recession.

The BoE predicts that the UK economy will contract by 0.1% in the third quarter, partly because of the extra holiday for Queen Elizabeth’s burial. This, along with a decline in output in the second quarter, satisfies the criteria for a technical recession.

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Next week’s key events for GBP/USD

According to the Fed’s quarterly economic estimates, the economy will begin to falter in 2022, with year-end growth at 0.2%. It will rise to 1.2% in 2023, far below the economy’s potential growth rates. For Q2, investors expect GDP to grow from -1.6% to -0.6%.

According to some economists, the economy may decline in July–September after contracting by 0.1% in the quarter from April to June.

GBP/USD weekly technical forecast: Freefall with no end in sight

The daily chart shows the price in a sea of red. The RSI is oversold, and the price is trading very far from the 22-SMA, indicating a lot of selling pressure.

The price has not paused since it broke below the 1.1451 support level. It broke below 1.1003, a key psychological level set to hit 1.0702 next week. Buyers might come in for a retest of 1.1003 before the downtrend resumes.

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