Is sterling a buy after crashing to 2020 lows?

The GBP/USD price crashed to the lowest level since 2020 as investors assessed the impact of the ongoing crisis in Ukraine on the UK economy. The pair is trading at 1.3030, which is about 8.60% below the highest level in 2021.

Fed and BOE decisions

The British pound has been in a deep sell-off lately as investors reflected on the ongoing crisis in Ukraine that has left millions of people as refugees. 

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There is a likelihood that the UK economy will be affected significantly as the crisis escalates. For one, like most countries, inflation has surged and is expected to get worse now that energy and commodity prices have risen.

At the same time, the UK government has taken measures to sanction Russian elites such as Chelsea owner Roman Abramovic. There is a likelihood that some sectors of the UK economy will be affected because of the volume of purchases by wealthy Russians. These sectors are real estate and high-end fashion industries.

The next key catalyst for the GBP/USD will be the upcoming UK jobs numbers that will come out on Tuesday morning. Analysts expect these numbers to show that the country’s labor market did well in January. 

For example, they expect that the unemployment rate dropped to 4.1% in January while the number of job additions increased dramatically. 

The GBPUSD pair will also be affected by the upcoming interest rate decisions by the Fed and the Bank of England (BOE). 

Analysts expect that the Fed will start hiking interest rates on Wednesday although the degree of these hikes is yet unclear. Some believe that the bank will deliver a 0.25% hike while others expect a 0.50% hike. The BOE will also deliver its rate decision on Thursday this week.

GBP/USD forecast

Turning to the four-hour chart, we see that the GBP/USD pair has been in a strong bearish trend in the past few weeks. As a result, it has dropped below the short and long-term moving averages and crossed the key support level at 1.3160. 

The pair has also moved below the short and longer term moving averages while oscillators are pointing downwards. Therefore there is a likelihood that the pair will keep falling in the coming days. If this happens, the next key level to watch will be at 1.2500.

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