GBP/USD Forecast: Powell to the rescue? Pound technicals and fundamentals point lower


  • GBP/USD has been struggling with rising UK covid cases, Brexit and Afghan issues. 
  • A dovish speech by Fed Chair Powell could weigh on the dollar, but the pound's potential is limited. 
  • Friday's four-hour chart is showing bears remain in the lead.

When a currency cannot hold up when all others are in suspense – its weakness is exposed. GBP/USD has been on the back foot, struggling to hold onto 1.37 while investors are holding their breaths toward a critical event. Federal Reserve Chair Jerome Powell is set to provide signals about tapering the bank's bond-buying scheme in the virtual Jackson Hole speech.

There are several reasons for sterling's suffering. UK COVID-19 cases have extended their increase, topping 38,000 in Thursday's report. Reopening the economy has consequences. While the government is unlikely to undo "Freedom Day," consumers may remain shy of going out and about, thus slowing the economic recovery. 

Another issue is Brexit-related – shortages in some supermarkets due to the inability of companies to find lorry drivers and also butchers. These are jobs usually done by EU nationals. 

The third factor weighing on GBP/USD comes from the terror attacks in Afghanistan. Explosions in Kabul Airport left some 72 dead according to the latest reports, among them 13 American soldiers. The dollar is benefiting from safe-haven flows – and these are more pronounced against the pound. 

To taper or not to taper? Fed Chair Powell will probably opt to delay any announcement until an official meeting of the bank and after next week's jobs report. The fact that the event is held online rather than in-person is telling. The Fed Chair is a dove who prefers erring on the side of caution – and he will likely be able to hold back the vocal hawks for a bit longer. 

Fed Chair Powell’s Jackson Hole Speech: Caution will win out

Ahead of his speech, the US releases the Core PCE inflation figure – the Fed's favorite – which is set to show a modest uptick from 3.5% to 3.6% YoY. 

See US July PCE Inflation Preview: Fed taper outlook depends on Powell rather than inflation data

Overall, the pound is poorly positioned ahead of Powell – which could result in more falls.

GBP/USD Technical Analysis

Pound/dollar has been unable to reconquer the 50 Simple Moving Average on the four-hour chart, a development that exacerbates downside momentum and the fact that it earlier failed to top the critical 1.3785 resistance line. The bears are firmly in the lead. 

Support awaits at the daily low of 1.3680, followed by 1.3635 and then by 1.36, August's trough. 

Resistance is at 1.3750, which capped a recovery attempt early in the week, and then by the almighty 1.3785 line. Further above, 1.3825 and 1.3875 are eyed. 

More Powell needs to answer these three questions

 

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