GBP/USD Forecast: Pound retreats on BOE commentary, bias remains slightly bullish
- GBP/USD has struggled to preserve its bullish momentum after rising above 1.3600.
- BOE's Bailey says they have "two-sided risks" to inflation forecast.
- Dollar holds its ground supported by rising US Treasury bond yields on Wednesday.
GBP/USD reversed direction and recovered after dropping below 1.3550 on Tuesday but has struggled to preserve its bullish momentum during the European trading hours on Wednesday. The pair faces strong resistance at 1.3630 and buyers could remain hesitant unless that level turns into support.
The improving market mood helped the British pound gain traction in the early European morning. Investors breathe a sigh of relief in the absence of headlines suggesting a further escalation of the Russia-Ukraine crisis. Reflecting the risk-positive atmosphere, the UK's FTSE 100 Index is up 0.7% on the day.
Nonetheless, the latest comments from Bank of England officials made it difficult for GBP/USD to stretch higher.
While presenting the Monetary Policy Report before UK Parliament's Treasury Committee, BOE Governor Andrew Bailey noted they had "two-sided risks" to their inflation forecasts. "Higher interest rates will raise unemployment and slow growth," Bailey added.
There won't be any high-tier data releases from the US on Wednesday and investors will keep a close eye on geopolitical developments instead. In case risk flows continue to dominate the markets in the second half of the day, GBP/USD could stretch higher. Meanwhile, rising US Treasury bond yields are helping the greenback hold its ground, suggesting that GBP/USD's upside could be capped if yields continue to climb.
GBP/USD Technical Analysis
GBP/USD is currently trading near 1.3600, where the Fibonacci 23.6% retracement of the latest uptrend is located. As long as buyers continue to defend this level, the pair could look to test the 1.3630/1.3640 area (static level, February 18 high) and target 1.3660 (static level) afterwards.
On the downside, 1.3585 (Fibonacci 38.2% retracement) aligns as interim support ahead of 1.3560 (100-period SMA on the four-hour chart, 200-period SMA, Fibonacci 61.8% retracement). As long as the latter support holds, the near-term outlook is unlikely to turn bearish.
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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.
