GBP/USD Forecast: Fed set to fuel another leg higher for sterling, recapturing 1.4130 is critical

• GBP/USD has bounced off the lows as UK data continues beating estimates. 
• If the US Federal Reserve rejects reducing bond-buying, there is further room to the upside.
• Wednesday's four-hour chart is showing 1.4130 is a critical confluence line. 

Stronger sterling in the morning, weaker dollar in the evening? That is the bullish playbook for GBP/USD on Wednesday. The pound has received an upward boost from UK Consumer Price Index statistics and the Federal Reserve could down the dollar late in the day.

Headline inflation rose by 2.1% YoY, beating estimates of 1.8% and marginally topping the Bank of England's 2% target. Moreover, Core CPI leaped to 2% against 1.5% projected. The faster increase in prices could push the BOE to hint at withdrawing some of its stimuli in its meeting next week. 

Better-than-expected inflation figures come on top of Tuesday's release of labor market figures. Britain's Unemployment Rate fell to 4.7%, while jobless claims fell by 92,600 in May. Upbeat figures from the recent past seem to outweigh concerns about a blow to the economy from the delay in reopening. 

The government's decision to postpone the full reopening to July 19 – due to the rise in cases prompted by the Delta covid variant – is now in the price. At least on Wednesday, the only downside risk for sterling comes from adverse Brexit headlines. 

For broader markets, the focus of the day – and the week – is on the Federal Reserve's rate decision. The world's most powerful central bank is due to publish new forecasts, where some members could opt for raising interest rates sooner than later, as America emerges from the covid crisis.

However, the labor market's recovery has fallen short of expectations, and also rising inflation is probably more related to the rapid reopening – sudden demand causing a boost in prices, that is unlikely to stick. Jerome Powell, Chair of the Federal Reserve, is set to reiterate that price rises are "transitory" 

Reporters are set to ask Powell if the Fed discussed tapering the pace of bond buys, currently at $120 billion per month. If his answer is negative, and especially if he stresses that such a debate is not scheduled, the greenback could further suffer. 

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Fed Interest Rate Decision Preview: Chair Powell will determine market response

All in all, the most plausible path is for further upside, at least according to fundamentals. 

GBP/USD Technical Analysis

Pound/dollar's four-hour chart is showing that bears remain in the lead. Momentum is to the downside and the pair still trades below the 50 and 100 simple moving averages. On the other hand, the recent upswing has sent GBP/USD above the 200 SMA. 

Critical resistance awaits at 1.4130, which held cable down earlier this week, and it is where the 50 SMA hits the price. It is followed by 1.4180, which capped a recovery attempt last week, and then by 1.4220 and 1.4250. 

Support is at 1.41, a round number, and then by the double bottom of 1.4070 and by the June low of 1.4030.