GBP/USD Forecast: Sellers to remain active if 1.2170 holds as resistance

Pressured by the safe-haven flows and the broad-based dollar strength, GBP/USD has lost its traction and dropped below 1.2200 early Wednesday. The pair was last seen trading within a touching distance of the lower limit of its two-week-old trading range, suggesting that the British pound is at risk of suffering additional losses.

In its monthly Consumer Confidence Survey, the Conference Board announced on Tuesday that the one-year consumer inflation expectations climbed to 8% in June from 7.5% in May. With the initial reaction to this report, Wall Street's main indexes fell sharply and the greenback gathered strength against its major rivals. According to the CME Group's FedWatch Tool, markets are rising an 87% chance of another 75 basis points rate hike in July.

On the other hand, investors refrain from betting on a pound recovery following the British government's approval of the bill that will allow them to unilaterally scrap parts of the post-Brexit trade agreement with the EU. Reflecting the risk-averse market atmosphere, the UK's FTSE 100 Index is down more than 0.5% in the European session.

Later in the day, Bank of England (BOE) Governor Andrew Bailey and FOMC Chairman Jerome Powell will speak on the policy outlook at the European Central Bank's (ECB) annual Forum on Central Banking. Both Powell and Bailey remain committed to battling inflation by tightening the policy. The BOE, however, acknowledged that there was a risk of the British economy tipping into recession in 2023. In the meantime, Powell remains confident that they can avoid a recession and restore price stability.

In case market participants see the Fed sticking to its aggressive tightening stance for longer than the BOE, the greenback is likely to outperform the British pound. On the other hand, a positive shift in risk sentiment is likely to hurt the dollar in the second half of the day.

GBP/USD Technical Analysis

The lower limit of the two-week-old trading channel aligns at 1.2170. In case this level is confirmed as resistance, GBP/USD could extend its slide toward 1.2120 (Fibonacci 23.6% retracement) of the latest downtrend, 1.2100 (psychological level) and 1.2050 (static level).

On the upside, a four-hour close above 1.2170 could open the door for an extended rebound to 1.2200 (Fibonacci 38.2% retracement) and 1.2250 (50-period SMA, 100-period SMA).

It's worth noting that the Relative Strength Index (RSI) indicator on the four-hour chart is edging lower below 40, confirming the buildup of bearish pressure.