GBP/USD Forecast: 1.2000 stays intact as focus shifts to Powell

GBP/USD has erased its daily gains after having declined below 1.2000 for the first time in a month early Tuesday. It's too early to say whether Pound Sterling is out of the woods as investors are unlikely to bet on an extended recovery ahead of FOMC Chairman Jerome Powell's highly-anticipated speech.

Although the risk-averse market environment provided a boost to the US Dollar, GBP/USD's downside remained limited. News of EU and UK negotiators having made a breakthrough in the Northern Ireland Protocol negotiations helped Pound Sterling stay resilient against its rivals. Additionally, Bank of England (BoE) Chief Economist Huw Pill noted that they were ready to do more to get inflation back to target. 

Early Tuesday, US stock index futures trade modestly higher on the day and the improving risk mood makes it difficult for the US Dollar to gather further strength.

In the American session, FOMC Chairman Jerome Powell will speak at an event organized by the Economic Club of Washington, D.C. 

Investors have reassessed the possibility of the Fed hiking the policy rate by 25 basis points twice in March and May after the January jobs report revealed a 571,000 increase in Nonfarm Payrolls. In case Powell reiterates that the tight labor market conditions will allow them to keep the policy tight for the remainder of the year, the US Dollar is likely to regather strength and weigh on GBP/USD.

Powell's remarks on the inflation outlook will also be watched closely by market participants. In last week's press conference, FOMC Chairman acknowledged that the disinflationary process has started and triggered a rally in Wall Street's main indexes. If Powell emphasizes that they could adjust the policy stance with inflation declining faster than expected, the US Dollar could have a hard time finding demand as a safe haven.

BoE Chief Economist Huw Pill and BoE Deputy Governor Jon Cunliffe are scheduled to speak later in the day as well.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the four-hour chart stays below 30, suggesting that GBP/USD is yet to correct its oversold conditions. On the upside, 1.2050 (static level) aligns as interim resistance ahead of 1.2070 (Fibonacci 61.8% retracement of the latest uptrend). With a four-hour close above the latter, the pair could extend its recovery toward 1.2100 (psychological level, static level).

On the flip side, sellers could look to dominate GBP/USD's action in case the pair falls below 1.2000 and starts using that level as resistance. In that scenario, 1.1930 (static level) and 1.1900 (psychological level, static level) could be seen as next bearish targets.