GBP/USD Forecast: Dead-cat bounce? Pound at the mercy of Powell

Inflation is everywhere – that is the notion after both the US and the UK have reported higher-than-expected price rises. However, the increases are boosted by transitory factors on both sides of the pond, and what matters is what policymakers think about it.

The latest GBP/USD move is to the upside, stemming from Britain's report of a 2.5% increase in the Consumer Price Index, higher than expected. However, these were boosted by second-hand cars, footwear, clothing and restaurant prices – all related to the reopening. Core CPI is up 2.3% YoY in June, also above estimates. 

See Inflation Analysis: Dollar selling opportunity? Fed could shrug off clunker-driven CPI

The picture is mirrored in America – albeit with higher levels of 5.4% on CPI and 4.5% on Core CPI, also boosted by prices of clunkers, car rentals, airfares and apparel. It is essential to note that Wednesday's more significant dollar boost came in response to a soft 30-year Treasuries auction, not inflation figures. That offering resulted in higher yields and jolted the greenback higher. 

Jerome Powell, Chair of the Federal Reserve, holds the key to the next moves. Will he say inflation is transitory and stress that "further substantial progress" is still needed? A dovish focus would imply a delay in the bank's tapering of its $120 billion/month bond-buying scheme. 

See Powell Preview: Three reasons to expect the Fed Chair to down the dollar

On the other hand, Powell could acknowledge the recent robust Nonfarm Payrolls report and see higher prices as more persistent, thus raising the chances for a taper announcement. That would boost the greenback.

While inflation is topping investors' agendas, the Delta covid variant continues spreading on both sides of the pond. Cases have topped 34,000 daily in the UK and have more than doubled in the past fortnight in the US. Even though the UK is set to reopen on Monday, doubts persist about such a move's sustainability. If cases continue rising in America, it could boost the dollar as a safe haven.

See Delta Doom is set to storm America, the dollar could emerge as top dog

Overall, the next moves almost exclusively depend on Powell, but it is hard to see sterling extending its recovery – the most recent move could be a dead-cat bounce. 

GBP/USD Technical Analysis

Pound/dollar is benefiting from upside momentum on the four-hour chart but has failed to recapture the 50 Simple Moving Average. It remains below the 100 and 200 SMAs. 

Support awaits at the daily low of 1.38, followed by 1.3750 and 1.3730, which have served as support lately. Further down, 1.3670 is the next cushion. 

Some resistance is at 1.3840, which held cable down last week. It is followed by the stubborn 1.3905 line which is the weekly high. Further above, 1.3935 is the next level to watch.