GBP/USD Forecast: Pound Sterling could correct lower in case 1.2800 stays intact

GBP/USD gained more than 100 pips on Thursday and continued to edge up early Friday, reaching its highest level since April 2022 at 1.2818. The pair stays overbought in the short term and profit-taking ahead of the weekend could make it difficult for Pound Sterling to gather strength later in the day. 

Persistent selling pressure surrounding the US Dollar (USD) fuelled the pair's upsurge on Thursday. There were 262,000 applications for unemployment benefits in the week ending June 10, the US Department of Labor reported, causing investors to reassess the possibility of one more Federal Reserve rate hike in July. Additionally, the risk-positive market environment – as reflected by sharp increases seen in Wall Street's main indexes – further weighed on the safe-haven USD.

Early Friday, US stock index futures trade modestly higher. The UK's FTSE 100 Index, however, erased a large portion of the opening gains, pointing to a cautious stance.

In the second half of the day, market participants will pay close attention to comments from Fed officials. Governor Christopher Waller is scheduled to deliver a speech at 11:45 GMT. The market positioning suggests that the USD could rebound if Fed officials hint at a return to rate hikes in July. According to the CME Group FedWatch Tool, markets are pricing in a 74% probability of the Fed raising the policy rate by 25 bps in July.

GBP/USD is already up 1.7%, or more than 200 pips, this week. Investors could look to book profits heading into the weekend, opening the door to a downward correction in GBP/USD.

GBP/USD Technical Analysis

GBP/USD fluctuates outside the ascending regression channel and the Relative Strength Index (RSI) indicator on the four-hour chart stays above 70, confirming overbought conditions.

1.2750 (static level, upper-limit of the ascending channel) aligns as first support ahead of 1.2700 (static level, psychological level) and 1.2670 (20-period Simple Moving Average (SMA), mid-point of the ascending channel).

On the upside, 1.2860 (static level from October 2020) and 1.2900 (psychological level, static level) could be set as next bullish targets once GBP/USD stabilizes above 1.2800 and starts using that level as support.