GBP/USD Forecast: Pound could suffer losses if buyers fail to reclaim 1.2200

GBP/USD has declined sharply in the early European session but managed to recover modestly after having briefly dipped below 1.2200. The near-term technical outlook doesn't offer any clear directional clues but the pair could stay on the back foot in case markets remain risk-averse in the American session.

The PMI data published by the S&P Global revealed on Thursday that the business activity in the UK's manufacturing and service sectors continued to expand at a relatively healthy pace in early June. Although the British pound erased a portion of its daily losses after these data, it could find it difficult to gather further bullish momentum.

Commenting on the PMI survey, "the economy is starting to look like it is running on empty," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence. "Current business growth is being supported by orders placed in prior months as companies report a near-stalling of demand." 

Later in the day, the US economic docket will feature the US PMI data. FOMC Chairman Jerome Powell said on Wednesday that a recession was not likely but noted it was "certainly a possibility" with the Fed continuing to hike the policy rate. If the PMI data point to a significant loss of momentum in the private sector's growth, the dollar could initially weaken against its major rivals. However, safe-haven flows are likely to dominate the markets in that scenario and help the dollar hold its ground. 

Powell will appear before the House Financial Services Committee on the second day of his semiannual testimony but he is unlikely to deliver any surprising comments on the policy outlook.

GBP/USD Technical Analysis

In case the pair fails to make a four-hour close above 1.2200, sellers could see that as an opportunity and trigger an extended decline toward 1.2120 (Fibonacci 23.6% retracement of the latest downtrend) and 1.2100 (psychological level).

On the upside, 1.2250 (20-period SMA on the four-hour chart) aligns as dynamic resistance if GBP/USD manages to stabilize above 1.2200. 1.2280 (Fibonacci 50% retracement, ascending trend line) and 1.2300 (psychological level) form next resistances.