GBP/USD Analysis: Bearish double-top in the making, FOMC in focus ahead of BoE on Thursday

The GBP/USD pair struggles to gain any meaningful traction during the Asian session on Wednesday and languishes near a multi-day low touched the previous day. The downside, however, remains cushioned as traders prefer to wait on the sidelines ahead of this week's key central bank event risks, starting with the FOMC decision later today. The US central bank is widely expected to hike interest rates by 25 bps amid signs of easing inflationary pressures. The bets were cemented by the US wage growth data released on Tuesday, which showed that labor costs increased less than expected in the fourth quarter.

In fact, the Labor Department reported that the Employment Cost Index rose 1.0%, marking the smallest advance since the fourth quarter of 2021. On a yearly basis, the labor cost, however, increased 5.1% during the reported period and remains well above the 3.5% that Fed officials view as consistent with tame inflation. Moreover, policymakers have been stressing the need to keep rates higher for longer in order to bring down inflation. This, in turn, suggests that the Fed is still going to sound hawkish, which, in turn, lends some support to the US Dollar and acts as a headwind for the GBP/USD pair.

Hence, investors will look to the accompanying monetary policy statement and Fed Chair Jerome Powell's remarks at the post-meeting press conference for clues about the rate-hike path going forward. This will play a key role in influencing the USD price dynamics and provide some meaningful impetus to the GBP/USD pair. The focus will then shift to the Bank of England (BoE) meeting on Thursday amid bets that elevated consumer inflation will force the central bank to continue lifting rates. Nevertheless, the decision should also contribute to determining the next leg of a directional move for the pair.

Technical Outlook

From a technical perspective, the recent failure near the 1.2450 area seems to constitute the formation of a bearish double-top pattern on the daily chart. That said, the lack of a strong follow-through selling warrants some caution before confirming that the GBP/USD pair has topped out. Moreover, oscillators on the daily chart, though have been losing traction, are still holding in bullish territory. Hence, any meaningful slide below the 1.2300 mark could find some support near the 1.2250 region, which if broken decisively should pave the way for deeper losses. Spot prices might then turn vulnerable to weaken further below the 1.2200 mark, toward testing the next relevant support near the 1.2175 region. The downward trajectory could get extended further towards the 1.2130-1.2125 zone en route to the 1.2100 round figure.

On the flip side, the 1.2400 mark now seems to have emerged as an immediate strong barrier ahead of the one-month high, around the 1.2445 area touched last Wednesday. Some follow-through buying should allow the GBP/USD pair to reclaim the 1.2500 psychological mark for the first time since June. The momentum could eventually lift spot prices towards the 1.2555-1.2560 hurdle, above which bulls might aim to test the 1.2600 mark.