GBP/USD Forecast: Pound Sterling remains fragile despite technical correction

GBP/USD has extended its technical correction early Thursday and climbed above 1.1850. The negative shift witnessed in risk sentiment, however, suggests that Pound Sterling could find it difficult to continue to gather strength against the US Dollar (USD). 

The US Dollar rally, which was fueled by FOMC Chairman Jerome Powell's comments about policymakers being ready to increase the pace of rate hikes if warranted by data, lost its steam on Wednesday. On the second day of his semi-annual testimony, Powell clarified that they have not yet made any decisions regarding the policy steps that will be taken at the March meeting.

With the US Dollar Index retreating modestly late Wednesday, GBP/USD managed to post small daily gains.

Early Thursday, the UK's FTSE 100 Index is down 0.8% on the day and US stock index futures are losing between 0.2% and 0.6%. In the absence of high-impact macroeconomic data releases from the US, market participants are likely to pay close attention to risk perception.

In case Wall Street's main indexes open in negative territory and continue to push lower, the USD is likely to hold its ground against its rivals. On the other hand, an improving risk mood could help GBP/USD inch higher.

Nevertheless, investors are likely to remain reluctant to take large positions ahead of Friday's February jobs report from the US, which could significantly impact the market pricing of a 50 basis points Fed rate hike in March.

GBP/USD Technical Analysis

GBP/USD is closing on 1.1900 (psychological level, static level) and the Relative Strength Index (RSI) indicator on the four-hour chart edges higher toward 50, suggesting that the pair remains in a technical correction phase. In case GBP/USD rises above 1.1900 and starts using that level as support, it could rise toward 1.1930 (end-point of the previous downtrend, static level) and 1.1975 (50-period Simple Moving Average (SMA)).

On the downside, first support is located at 1.1800 (static level, psychological level) ahead of 1.1750 (static level from November) and 1.1700 (psychological level, static level) could be witnessed.