GBP/USD, USD/JPY Forecast: Two trades to watch

GBP/USD struggles around a 6-week low ahead of the BoE rate decision

GBP/USD has fallen to a six-week low, with a stronger dollar following the hawkish Fed hike, as attention turns to the Bank of England's interest rate decision at 12:00 BST today.

The central bank is expected to leave interest rates unchanged at 3.75%, where they have been since December last year.

The decision comes as inflation has risen to 3.1%, but service sector inflation and underlying inflation remained unchanged in August. The labour market is weakening, which is also helping to offset some of the inflationary pressures stemming from the Middle East conflict.

The question is how long the Bank of England will be able to maintain this stance, given that oil and gas prices are rising sharply and are now above the adverse scenario set out by the central bank in July.

Therefore, officials are expected to set the stage for a hike in November, which could be the first of several.

The vote is expected to be 3-6-3 in favour of holding, the same as in July. A more hawkish vote could help to support the pound.

The meeting comes after the Federal Reserve hiked rates by 25 basis points and adopted a hawkish stance at its meeting yesterday, lifting the U.S. dollar to a six-week high.

The 25-basis-point hike to 3.75%-4.00% was forecast. The dot plot points to at least one more rate hike this year.

GBP/USD forecast – technical analysis

GBP/USD broke down below the ascending channel, taking out the 200 EMA and falling to 1.3380. This, combined with the RSI below 50, keeps sellers hopeful of further downside.

Attention will turn to 1.3340, the horizontal support, and 1.3270, the July low. A break below here opens the door to the 1.3200 support zone.

On the upside, immediate resistance is seen at the 200 EMA at 1.3430, with a rise above here exposing the 50 EMA at 1.3490. Should buyers rise above 1.3500, this would create a higher high towards 1.3650.

USD/JPY in focus after a hawkish Fed hike ahead of the BoJ meeting

USD/JPY jumped to a two-week high above 156.00 on Wednesday, before easing back slightly to 158.0 at the time of writing.

The jump came following the Federal Reserve's hawkish hike, lifting the U.S. dollar to a six-week high.

The Federal Reserve raised interest rates by 25 basis points as expected, and delivered its first hike since 2023. However, policymakers also lifted their inflation and growth forecasts, while the dot plot pointed to more hikes this year.

Sixteen of 18 policymakers supported at least one more rate hike this year, with four of those supporting two more rate hikes.

This has prompted markets to price in three additional hikes by the middle of next year.

Attention is now turning to the Bank of Japan, and the hawkish Fed position threatens to keep the U.S.-Japan rate gap wide, even as the Bank of Japan is expected to hike rates as well this week.

The yen weakened by around 1% overnight in the wake of the Fed move. This reversal comes after a sharp rally earlier this month, fuelled by expectations of intervention, faster BoJ monetary policy tightening and the unwinding of some yen-funded carry trades.

For the yen to remain supported, the BoJ will not only need to hike rates but also deliver a hawkish message in order to limit the damage to the currency. Failure to do so, and a disappointment from the BoJ, could see the 160 level come back into focus.

A 25-basis-point rate hike is almost fully priced in, meaning that the focus is firmly on BoJ Governor Ueda's post-decision conference for clues over the pace of additional tightening.

Should the yen weaken back towards the 160 level, it could put intervention risk back on the table.

USD/JPY forecast – technical analysis

USD/JPY's recovery from the 153.00 low has run into resistance at the 156.30 level. The price still trades below its 50, 100 and 200 EMAs in a bearish picture.

Buyers would need to extend the recovery above the 200 EMA at 157.80 and the 50 EMA at 158.20 to put the price on a firmer footing. From here, attention would turn to the 160 resistance zone.

Support is seen at 155.40, with a break below here opening the door to 154.65 before attention would turn back towards 153.00.