GBP/USD Forecast: Pound Sterling eyes new one-year high

GBP/USD has staged a modest technical correction after having reached its highest level in nearly a year slightly below 1.2600 early Thursday. The pair's near-term technical outlook shows that the bullish bias stays intact but an extended rally depends on the US Dollar's valuation after the US data later in the day.

The dovish change in the US Federal Reserve's (Fed) policy statement language caused the US Dollar to come under renewed selling pressure. Although the US central bank raised its policy rate by 25 basis points (bps) to the range of 5-5.25%, it signalled a pause in the tightening cycle by removing the comment from the policy statement that read "some additional policy firming may be appropriate."

FOMC Chairman Jerome Powell chose not to commit to a pause in rate hikes in the press conference but failed to convince investors. The CME Group FedWatch Tool shows that markets are pricing in a 95% probability that the Fed will leave its policy rate unchanged at next month's meeting.

Later in the session, weekly Initial Jobless Claims data from the US and the Unit Labor Costs for the first quarter will be watched closely by market participants. Powell reiterated on Wednesday that they will monitor data closely. In case the US data confirms tight labor market conditions by showing a significant decline in jobless claims and a stronger-than-expected growth in wage inflation, the USD could stage a rebound and force GBP/USD to extend its downward correction.

On the other hand, disappointing data from the US should make it difficult for the USD to find demand ahead of Friday's April jobs report and open the door for another leg higher in GBP/USD.

Investors will also pay close attention to the European Central Bank's (ECB) policy announcements. A hawkish ECB tone should highlight the policy divergence between the ECB and trigger capital outflows from the USD to Euro. In that scenario, the USD could struggle to find its footing even if the data go against the dovish Fed view.

GBP/USD Technical Analysis

1.2600 (mid-point of the long-term ascending regression channel) aligns as key resistance level for GBP/USD. If the pair rises above that level and confirms it as support, it could target 1.2640 (static level from May 2022) and 1.2680 (upper-limit of the ascending channel).

On the downside, 1.2550 (static level, former resistance) is an interim support ahead of 1.2500 (psychological level, static level, lower limit of the ascending channel). A daily close below the latter could be seen as a significant bearish development and open the door for an extended slide toward 1.2450 (100-period Simple Moving Average (SMA)).