GBP/USD Forecast: Bulls remain at the mercy of USD price dynamics, ahead of BoE’s Bailey

The GBP/USD pair struggles to capitalize on its positive move and retreats from the vicinity of the 1.2300 mark, or a one-month high touched earlier this Monday. The pair slides back below the 1.2200 round figure during the early European session and is pressured by a solid US Dollar recovery from a fresh multi-month low. Worries about a deeper global economic downturn continue to keep a lid on any optimism. This is evident from the cautious mood around the equity markets, which is seen driving some haven flows towards the greenback.

The British Pound, on the other hand, continues to be weighed down by a bleak outlook for the UK economy, which has been fueling that the Bank of England (BoE) could be nearing the end of its current rate-hike cycle. This further acts as a headwind for the GBP/USD pair and contributes to the intraday downfall of around 100 pips. That said, growing acceptance that the Fed will soften its hawkish stance, amid signs of easing inflation pressures, could act as a headwind for the greenback and limit losses for the major, at least for the time being.

The latest US consumer inflation figures released last week showed that the headline CPI fell in December for the first time in more than 2-1/2 years. Furthermore, several Fed officials backed the case for smaller 25 bps lift-off in February. This, in turn, might hold back the USD bulls from placing aggressive bets and lend some support to the GBP/USD pair. Traders might also prefer to wait on the sidelines ahead of BoE Governor Andrew Bailey's speech. The focus will then shift to the UK jobs data and CPI report on Tuesday and Wednesday, respectively.

Apart from this, traders will take cues from this week's US macro releases, including the Producer Price Index (PPI) and monthly Retail Sales figures on Wednesday. In the meantime, the mixed fundamental backdrop warrants some caution before placing bearish bets around the GBP/USD pair in the absence of any relevant market-moving economic data from the UK. Moreover, the US markets will be closed in observance of Martin Luther King Jr. Day. Hence, strong follow-through selling is needed to support prospects for a deeper intraday corrective decline.

Technical Outlook

From a technical perspective, any subsequent fall is likely to find some support near the 1.2145-1.2140 area. This is followed by the 1.2100 round figure, which if broken decisively will expose the next relevant support near the 1.2000 psychological mark. The latter coincides with the very important 200-day SMA and should act as a pivotal point for the GBP/USD pair. A convincing break will negate any positive outlook and shift the near-term bias in favour of bearish traders.

On the flip side, the daily swing high, just ahead of the 1.2300 mark, now turns an immediate strong hurdle for the GBP/USD pair. Some follow-through buying will be seen as a fresh trigger for bullish traders and pave the way for a further appreciating move. Spot prices might then surpass the 1.2350 intermediate hurdle and aim to reclaim the 1.2400 mark. The momentum could get extended further towards a multi-month peak, around the 1.2445 zone touched in December.