GBP/USD Forecast: Pound could struggle to extend rebound

GBP/USD has turned north after having tested 1.3000 early Wednesday. The pair continues to inch higher toward the 1.3050 resistance area and it needs to clear that level to attract buyers. 

The broad-based selling pressure surrounding the greenback is fueling GBP/USD's recovery during the European session. At the time of press, the US Dollar Index, (DXY) which advanced to its highest level in nearly two years above 101.00 on Tuesday, was falling 0.5% on the day near 100.50. In the absence of high-tier macroeconomic data releases, the sharp downward correction witnessed in the benchmark 10-year US Treasury bond yield seems to be causing the dollar to weaken against its rivals.

It's worth noting, however, that the yield on the 10-year UK gilt is declining at a faster pace than the 10-year US yield on Wednesday, suggesting that the British pound could find it difficult to capture the capital outflows out of the dollar.

In the meantime, EUR/GBP is rising for the third straight day on Wednesday, showing that the euro is attracting more demand than the pound.

The only data featured in the US economic docket will be the March Existing Home Sales on Wednesday. More importantly, several FOMC policymakers, including Chicago Fed President Charles Evans and Atlanta Fed President Raphael Bostic, will be delivering speeches.

On Tuesday, Evans and Bostic both pushed back against the idea of the Fed needing to hike the policy rate by 75 basis points. According to the CME Group FedWatch Tool, markets are pricing a 4% probability of the Fed raising the policy rate by less than a total of 100 basis points in the next two policy meetings. This development indicates that the greenback doesn't have a lot of room on the upside even if policymakers deliver hawkish remarks.

GBP/USD Technical Analysis

Earlier in the day, GBP/USD fell sharply after rising toward 1.3050 (static level, 50-period SMA), highlighting the importance of this resistance. In case the pair rises above that level and starts using it as support, it could target 1.3070 (100-period SMA) and 1.3100 (200-period SMA next).

On the downside, 1.3000 (psychological level, static level) aligns as key support. A daily close below that level could bring in sellers and cause the pair to fall toward 1.2970 (April 13 low) and 1.2920 (static level).