GBP/USD Forecast: Pound to extend sideways grind in short term

GBP/USD has gone into a consolidation phase above 1.1400 after having closed the first day of the week virtually unchanged. As investors prepare for the US Federal Reserve's and the Bank of England's (BoE) policy announcements, the pair is likely to have a hard time finding direction in the near term.

The dollar rally lost its steam on Monday after Nick Timiraos, Wall Street Journal author who leaked the 75 basis points (bps) Fed rate hike in July, refrained from hinting at a 100 bps rate increase in his latest article. In turn, Wall Street's main indexes managed to post modest recovery gains and allowed GBP/USD to retrace its daily drop.

Early Tuesday, the UK's FTSE 100 Index trades flat on the day and US stock index futures are down between 0.1% and 0.25%, pointing to a cautious market atmosphere.

Although the US Dollar Index could hold its ground in case the market mood continues to sour in the second half of the day, GBP/USD is likely to continue to fluctuate between key technical levels.

Meanwhile, Reuters reported that trades were pricing in two three-quarter points BoE rate increases by the end of the year. This headline, however, failed to trigger a noticeable market reaction.

August Housing Starts and Building Permits data from the US will be looked upon for fresh impetus later in the day but the risk perception should continue to influence the dollar's market valuation.

GBP/USD Technical Analysis

GBP/USD was last seen trading near the 20-period SMA on the four-hour chart. Additionally, the Relative Strength Index (RSI) indicator stays slightly below 50, confirming the lack of buyer interest.

On the downside, 1.1400 (psychological level, static level) aligns as initial support before 1.1350 (multi-decade lows) and 1.1300 (psychological level). Resistances are located at 1.1450 (static level), 1.1500 (psychological level) and 1.1550 (100-period SMA).