GBP/USD Forecast: Pound remains fragile despite latest recovery attempt

GBP/USD has recovered above 1.2100 in the European morning.
British pound could hold its ground in case market mood improves.
Wednesday's US inflation data will be the next significant catalyst for the pair.

Eren Sengezer FXStreet

GBP/USD has gathered recovery momentum and climbed above 1.2100 during the European trading hours on Tuesday. The pair closes in on key resistance levels and it could find it difficult to attract buyers ahead of the US Consumer Price Index data on Wednesday.

In an interview with Reuters, Bank of England (BOE) Deputy Governor Dave Ramsden said that the BOE could continue to sell gilts even if a recession forces it to start lowering the policy rate. "I think by embarking on QT, that does at the margin impart some further monetary tightening, but it's in the background compared to Bank Rate," Ramsden told Reuters.

Although these comments seem to be helping the British pound stay resilient against the dollar, the currency could struggle to gather strength with the UK economy facing tough times ahead. Energy consultancy firm Cornwall Insight reported on Tuesday that energy bills in the UK are expected to rise at a stronger pace than initially forecast.

Later in the day, second-quarter Nonfarm Productivity and Unit Labor Costs from the US will be looked upon for fresh impetus. The IBD/TIPP Economic Optimism Index and the NFIB Business Optimism Index will also be featured in the US economic docket.

These data are unlikely to impact the probability of the 75 basis points Fed rate hike in September, which currently stands at 65%. However, in case safe-haven flows return on disappointing prints, safe-haven flows could provide a boost to the dollar and weigh on GBP/USD. At the time of press, US stock index futures were posting small daily gains, pointing to a cautious market mood.

GBP/USD Technical Analysis

1.2150 (50-period SMA on the four-hour chart) aligns as first resistance ahead of 1.2175 (Fibonacci 23.6% retracement of the latest uptrend). In case GBP/USD breaks above the latter, it could stretch higher toward 1.2200 (psychological level, static level).

On the downside, sellers could show interest if the pair falls back below 1.2100 (Fibonacci 38.2% retracement). In that case, additional losses toward 1.2070 (200-period SMA) and 1.2050 (Fibonacci 50% retracement) could be witnessed.

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Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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