GBP/USD Forecast: Next bullish target aligns at 1.3680

GBP/USD has capitalized on the selling pressure surrounding the dollar and reached its strongest level since early November at 1.3645. Since then it has gone into a consolidation phase early Wednesday. The pair could target 1.3680 as long as support at 1.3600 holds.

FOMC Chairman Jerome Powell adopted a cautious tone regarding the timing of the balance sheet reduction on Tuesday and caused the greenback to lose interest.

While testifying before the Senate, Powell acknowledged that they are likely to act sooner to start running off the balance sheet than they did in the previous tightening cycles but noted that they are still debating the process. The chairman, however, noted that they might need as many as four policy meetings before coming up with a final plan and forced the benchmark 10-year US Treasury bond yield to continue to retreat from the two-year high it set above 1.8% earlier this week.

Later in the session, the US Bureau of Labor Statistics will publish December Consumer Price Index (CPI) data. On a yearly basis, the CPI is forecast to rise to 7% from 6.8% in November. A print above the market expectation could help the dollar find demand and force GBP/USD to stage a deeper correction. On the flip side, a soft CPI reading is likely to put USD under renewed bearish pressure and open the door for additional gains in the pair.

Powell reiterated on Tuesday that inflation will remain at the top of their agenda, confirming the view that the Fed will prioritize easing price pressures over employment, at least in the near term.

US Inflation Preview: Dizzying heights of 7% would cement a March hike, supercharge the dollar.

GBP/USD Technical Analysis

Even if GBP/USD loses traction after the CPI data, the near-term outlook will remain bullish as long as buyers defend 1.3600, where the 20-period SMA on the four-hour chart and the lower limit of the ascending regression channel is located.

On the upside, interim resistance seems to have formed at 1.3645. In case a four-hour candle closes above that level, additional gains toward 1.3680 (static level, upper limit of the ascending channel) and 1.3700 (psychological level) could be witnessed. 

Below 1.3600, 1.3560 (static level, 50-period SMA) aligns as the next significant support.