GBP/USD Forecast: Oversold? Fed-fueled dollar and covid-concerned pound point to further falls

  • GBP/USD has tumbled under 1.40 after the Fed surprised with a hawkish move. 
  • The increase in Britain's covid cases is becoming more worrying.
  • Thursday's four-hour chart is showing cable is entering oversold conditions.

Over 150 pips down – and no end in sight. Pound/dollar has been hit by both dollar-positive and pound-negative news. The new development comes from Washington, where the Federal Reserve shocked markets on Wednesday, with ripple effects carrying into Thursday.

The Fed indicated it is set to raise rates twice in 2023, up from waiting with such a hike until 2024. While Federal Reserve Chair Jerome Powell asked markets to take the bank's projections – aka "dot plot" – with a grain of salt, his comments were upbeat on the economy.

The rapid vaccination campaign and the quick reopening have triggered higher prices that surprised the Fed and that could persist. The conviction that inflation is merely transitory has weakened. Moreover, Powell said he expects significant job gains in the coming months and the quick expansion to continue.

The dollar reacted by surging higher, and after pausing at around 1.40, GBP/USD extended its decline into Thursday. Analysts are changing their forecasts in response to the Fed's hawkishness, triggering a second wave of greenback gains.

Federal Reserve ups the ante on inflation, growth and interest rates

Weekly jobless claims and the Philly Fed Manufacturing Index are of interest later in the day, but Britain's daily update on COVID-19 cases will likely have a stronger effect. The Delta variant continues spreading, pushing the daily infection load toward 10,000.

The government already extended current restrictions through July 19, a four-week delay. This postponement of "Freedom Day" caused some anger among Prime Minister Boris Johnson's backbenchers, but sailed through parliament. The question is: is another delay on the cards? Apart from the political unease, another delay would hurt the economy even more. 

Britain's vaccination campaign has been hailed as one of the best in the world, but those without second doses seem vulnerable. The efforts to accelerate second jabbings and to reach younger people may bear fruits in a week or two, but the current leap in cases is alarming. Sterling could further suffer.

All in all, cable has more room to fall.

GBP/USD Technical Analysis

Pound/dollar has pierced through the 200 Simple Moving Average on the four-hour chart and momentum is to the downside. Is GBP/USD oversold? The Relative Strength Index is "hugging|" the 30 line – on the edge. That means a minor correction could come, but it is far from guaranteed. 

Some support awaits at 1.3930, which capped GBP/USD back in early May. It is followed only by 1.3855, a support line from that time, and then by 1.3825 and 1.38.

Immediate resistance is at 1.3975, which held pound/dollar down in mid-April, and then by 1.4010, a separator of ranges from earlier in the year. Next up, 1.4025 and 1.4070 await the currency pair. 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

Latest Forex Analysis

Latest Forex Analysis

Editors’ Picks

EUR/USD struggles to rebound, holds near 1.1150 after US data

EUR/USD trades around 1.1150 in the early American session on Friday as investors assess the latest inflation data from the US. According to the US Bureau of Economic Analysis, Core PCE Price Index rose to 4.9% on a yearly basis in December from 4.7% in November, surpassing the market expectation of 4.8%. 


GBP/USD clings to small gains above 1.3400 on mixed US data

GBP/USD posts modest daily gains slightly above 1.3400 on Friday as the dollar rally loses steam. The data from the US showed that the core PCE inflation edged higher to 4.9% in December. On a negative note, Personal Spending contracted by 0.6% on a monthly basis.


Gold recovers modestly after US data, stays below $1,800

Gold managed to stage a rebound from the multi-week low it set below $1,780 but continues to trade deep in the red near $1,790. The benchmark 10-year US Treasury bond yield is rising more than 1% on the day after US data, limiting XAU/USD's recovery.

Gold News

Bitcoin Weekly Forecast: Federal Reserve cannot tame BTC’s uptrend

Bitcoin has experienced some significant losses over the past few weeks, with a more dramatic drop occurring this week after the Fed's decision was announced. As losses have extended and BTC has entered into the $30,000 zone, concerns regarding Bitcoin being in a bear market have increased.

Read more

Apple share price set to rise after another record quarter

With the Nasdaq closing at its lowest level in seven months yesterday, the Apple share price has also found itself on the end of the recent weakness in tech shares, down over 12% from its record highs in early January.

Read more