GBP/USD Forecast: Pound Sterling faces key hurdles as recovery continues

GBP/USD has regained its traction following a pullback in the Asian session and advanced toward 1.2100 early Tuesday. The pair's near-term technical outlook points to a buildup of bullish momentum and additional gains could be witnessed once it manages to clear two key hurdles at 1.2100 and 1.2120.

GBP/USD registered strong gains on Monday as the improving market mood and the disappointing January Durable Goods Orders from the US caused the US Dollar (USD) to weaken against its major rivals.

In the meantime, British Prime Minister Rishi Sunak announced late Monday that they have reached an agreement with the European Union to replace the Northern Ireland Protocol with the Windsor Framework. Although it's too early to say whether this development could have a lasting impact on Pound Sterling's valuation and the Bank of England's (BOE) policy outlook, the initial market reaction helped the pair stretch higher.

UK PM Sunak also noted that MPs will vote on the new deal and that they will respect the results of the vote.

Later in the session, several BOE policymakers will be delivering speeches. The US economic docket will feature the Conference Board's Consumer Confidence Survey for February.

In January, the one-year consumer inflation rate expectation component of that survey climbed to 6.8% from 6.6% in December. Latest inflation data for January revealed that price pressures remained higher than expected. In case consumer inflation expectations continued to rise as a result, the US Dollar could gather strength in the second half of the day and limit the pair's upside and vice versa.

Meanwhile, market participants will pay close attention to risk perception. US stock index futures recovered and turned nearly flat on the day after having declined by over 0.3% earlier in the day. If Wall Street's main indexes manage to build on Monday's gains, GBP/USD could keep its footing in the American session.

GBP/USD Technical Analysis

GBP/USD climbed above the descending trend line and the Relative Strength Index (RSI) indicator on the four-hour chart rose to 60, pointing to a buildup of bullish momentum.

On the upside, 1.2100 (psychological level, static level) aligns as immediate hurdle before 1.2120 (Fibonacci 38.2% retracement of the latest downtrend). Once the pair stabilizes above the latter, additional gains toward 1.2180 (Fibonacci 50% retracement, 200-period Simple Moving Average (SMA)) could be witnessed.

1.2060 (broken trend line, 100-period SMA) forms first support before 1.2030 (50-period SMA) and 1.2000 (psychological level, 20-period SMA).