GBP/USD Forecast: Pound to remain bullish as long as 1.2175 support holds

GBP/USD has gone into a consolidation phase early Thursday following Wednesday's impressive rally. The near-term technical outlook suggests that the pair's bullish bias stays intact and an extended recovery could be witnessed in case buyers continue to defend 1.2175.

The dollar came under intense selling pressure as investors scaled back hawkish Fed bets on soft inflation figures. The US Bureau of Labor Statistics reported on Wednesday that the annual Consumer Price Index (CPI) declined to 8.5% in July from 9.1% in June. The Core CPI stayed unchanged at 5.9% in the same period, coming in lower than analysts' forecast of 6.1%.

The odds of a 75 basis points (bps) Fed rate hike in September declined to 30% from nearly 70% a day earlier. Cautious Fed commentary on the inflation outlook, however, caused the 75 bps rate increase probability to recover above 40%.

Chicago Fed President Charles Evans reminded investors that they were not finished with rate hikes. Furthermore, San Francisco Fed President Mary Daly and Minneapolis Fed President Neel Kashkari both said that they wouldn't declare victory on inflation with CPI coming down in July. 

Meanwhile, several news outlets reported that UK government ministers were set to meet with energy companies on Thursday to discuss the Treasury's intention to toughen the 25% levy on the profits of North Sea oil and gas operators.

The market mood remains cautious on this headline with the UK's FTSE 100 Index trading flat on the day. Additionally, US stock index futures erased earlier gains, suggesting that Wall Street's main indexes could have a tough time building on Wednesday's upsurge. 

The weekly Initial Jobless Claims and July Producer Price Index data from the US will be looked upon for fresh impetus in the second half of the day. In case the market mood continues to sour, GBP/USD could struggle to stretch higher and vice versa.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the four-hour chart stays near 60, suggesting that sellers remain on the sidelines. On the downside, 1.2175 (Fibonacci 23.6% retracement of the latest uptrend) forms strong support. In case the pair drops below that level and starts using it as resistance, bears could show interest and drag the pair lower toward 1.2150 (50-period SMA on the four-hour chart) and 1.2100 (Fibonacci 38.2% retracement, 100-period SMA).

1.2275 (the end-point of the uptrend) aligns as next important hurdle ahead of 1.2300 (psychological level), 1.2350 (static level) and 1.2400 (psychological level, static level).