GBP/USD Forecast: Sterling suffers altitude sickness, new Powell-powered rally may wait

GBP/USD has tumbled over 100 pips from the highs after a massive rally.
Fed Chair Powell´s dovishness and the UK´s exit plan may trigger a new upward move after the correction ends.
Wednesday's four-hour chart is showing the currency pair is still suffering from overbought conditions.

Yohay Elam FXStreet

Overheating requires a quick cooldown – not US inflation, but rather GBP/USD's rally. Jerome Powell, Chairman of the Federal Reserve, has pushed the dollar down by promising ongoing support to the economy. This "Powell Put" for stocks also contributed to propelling the pound to sky-high levels of 1.4240, last seen nearly three years ago. The reality check has come now.

Sterling's upside move was also underpinned by speculation that the UK may accelerate its exit from restrictions before the government's June 21 target date. Reports by the British press have yet to be confirmed – and will likely turn into nothing.

Quick vaccine-led recovery in Britain also led some market participants to bet on the Bank of England raising rates sooner rather than later. Similar to hiking borrowing costs in America, UK bond yields signaled an early move in response to higher inflation expectations. However, BOE Governor Andrew Bailey and his colleagues – slated for public appearances on Thursday – will likely play down any such move.

Bloated estimates about Britain's bounceback are behind the fall, but the picture remains positive for sterling as the vaccination campaign continues at full speed.

Back to the US, Powell appears before Congress again on Wednesday and will likely reiterate that the Fed "is not thinking about thinking of raising rates" as he once said. Stressing that ten million Americans remain unemployed and that the Fed is there to keep long-term borrowing costs low should alleviate markets. For the dollar, while ten-year Treasury yields hold below 1.50%, the dollar's gains will likely be limited.

See Dollar tumbles as Powell says no rate hike, no taper

Investors will also be awaiting stimulus news. The House is set to approve the $1.9 trillion bill on Friday but the real battle is in the Senate. Any comments from members in the upper chamber may rock markets.

All in all, once the correction is over, GBP/USD has room to rise.

GBP/USD Technical analysis

The Relative Strength Index on the four-hour chart is still above 70 – indicating overbought conditions but below extreme levels seen earlier. Other indicators such as momentum and cable's trading above the 50, 100 and 200 Simple Moving Averages are pointing up.

Support awaits at 1.4095, a temporary cap on the way up, and then by 1.4050, a support line seen earlier this week. Further below 1.3970 and 1.3950 are the next levels to watch.

Resistance is at 1.42, the round number, and then the new 2021 peak of 1.4240. The next lineup high is 1.43.

More Five factors moving the US dollar in 2021 and not necessarily to the downside

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

AUD/USD turns south toward 0.6900 as USD firms up

AUD/USD sees fresh selling and drops toward 0.6900 in late Asian trading on Monday, as renewed US Dollar strength weighs on the pair amid lingering Middle East and Russia-Ukraine geopolitical tensions. Focus remains on Oil prices, Treasury bond yields, and RBA expectations for fresh trading impetus in the major.

USD/JPY retakes 158.00 amid hawkish BoJ bets, firmer USD

USD/JPY erases losses and retakes 158.00 in the Asian session on Monday, trading within a one-week-old range. Geopolitical uncertainty continues to underpin the US Dollar, despite fading Fed rate hike hopes, supporting the pair's rebound. However, further upside could be capped by hawkish BoJ expectations and looming intervention risks that could support the Japanese Yen.

Gold languishes below $4,200 amid high US yields

Gold trims some losses on Monday, but remains trapped within previous ranges, with upside attempts limited below $4,200 and with two-month lows of $4,110 at a short distance. The recent pullback on the US Dollar Index has provided some support for precious metals although the high US Treasury yields are keeping a floor on US Dollar dips so far.

Pi Network risks a steeper decline as bearish momentum builds

Pi Network extends losses below $0.090 maintaining a steady decline for the fifth consecutive day. The retail demand remains firm, with the notional value of active perpeutals holding above $10 million. The technical outlook for PI remains bearish as bearish momentum mounts.

ISM Services PMI expected to show robust US economy in September

The US ISM Services PMI is expected to improve marginally in September. The US services sector is expected to remain well into expansionary territory. Bets of further Fed tightening appear to have lost traction in the last few days.

The Euro is near a one-year low: Inflation could trigger its rebound, not its fall

EUR/USD has fallen to its lowest level since May 2025. The pair hit 1.1312 on Wednesday and trades well below the January peak of 1.2082. The decline reflects a powerful combination of US Dollar strength, geopolitical uncertainty and renewed concerns about Europe's exposure to higher energy prices.