GBP/USD Forecast: Inevitable break below critical support? King Dollar seems unstoppable

An 8.8% annual pay rise – that is what British workers have received, on average – but that is likely insufficient to battle King Dollar as fears of the Federal Reserve are on the rise.

Britain's latest jobs report showed an impressive 8.8% increase in average earnings, but officials were quick to note that it is based on "base effects" – low salary growth this time last year. Pound bulls were likely impressed by the UK's low Unemployment Rate of 4.7% in June, also better than expected, but less delighted with the meager decrease in jobless claims in July. The Claimant Count Change dropped by only 7,800 against 84,100 projected. 

Moreover, GBP/USD's support from Britain's economic data – and the potential resulting hawkishness by the Bank of England – is likely no match to the dollar.

The greenback is benefiting from safe-haven flows. Investors are worried about China's crackdown on tech companies, the chaotic scenes from Afghanistan and rising global covid cases which undermine global growth.

More importantly, the dollar is appreciating in response to speculation that the Fed moves closer to tapering down its bond-buying scheme sooner rather than later. Reports on CNBC and the Wall Street Journal suggested the bank is nearing such an announcement in September. The hawks are gaining ground.

Federal Reserve Chair Jerome Powell could alleviate them in a speech late in the day, as he has tended to lean toward the dovish side, such as sticking to labeling inflation as transitory. However, if he fails to deny that the Fed is set to purchase fewer bonds – print fewer dollars – the greenback could extend its gains. He may skip direct comments on monetary policy, but questions from the audience could prompt him to release market-moving remarks. 

Ahead of Powell, markets will be watching US Retail Sales figures closely. America's economy is centered on consumption and economists foresee moderation in July's data. The economic calendar is pointing to a decrease in headline sales and a minor increase in the all-important Control Group core measure.

However, underestimating the US shopper may prove a risky strategy. Any figure that is only satisfactory could give the greenback another boost. 

See US Retail Sales Preview: Dollar booster? Low expectations, market mood point to a clear reaction

Overall, the trend is toward further falls for the pair, mostly based on dollar strength.

GBP/USD Technical Analysis

Pound/dollar has slipped below the 200 Simple Moving Average on the four-hour chart, adding to the bearish bias, after failing to break above the 50 and 100 SMAs. It is also suffering from downside momentum.

Critical support awaits at 1.3785, which is August's trough and the lowest since July 27 – three weeks ago. Further down, 1.3760 and 1.3720 await.

Some resistance is at 1.3835, where the 200 SMA hits the price. It is followed by 1.3880, 1.3895 and 1.3950.