GBP/USD Forecast: Sterling suffers, and a dollar breather may fail to lift it

Blame it on Biden or on Boris? The chaos in Kabul has prompted a lively debate in the British parliament that will likely continue for long days. In currency markets, the most recent downfall of GBP/USD can be easily attributed to America's central bank – but it would be hard for the pound to recover. 

The Federal Reserve's meeting minutes from its late July decision have shown that there is growing support for tapering the bank's bond-buying scheme already this year. That has sent the dollar higher across the board. 

This greenback strength may reach its limits later in the day, as investors have a rethink about the meaning of the minutes. The protocols are from a gathering held three weeks ago, and consumer data has since deteriorated. Covid figures have also gone in the wrong direction. 

Moreover, while hawks may be mustering a majority to print fewer dollars, there is limited support for raising interest rates immediately afterward. The document included a passage stressing the separation between the two tightening moves. 

If such a dollar downward correction materializes, how much lost ground would cable recover? The Bank of England is unlikely to rush with tightening ahead of the Fed, especially after Wednesday's inflation publication. The headline Consumer Price Index rose by 2% in July, weaker than projected. 

Another reason to expect a looser British monetary policy and a softer economy comes from COVID-19. After a drop in mid-July, cases are creeping up and so are hospitalizations.

Source: FT

Even if the government does not reimpose any of the restrictions removed on "Freedom Day," the resurgence of the virus could prompt caution and less economic activity. 

Overall, the dollar has room to retreat from the highs, but the sterling may struggle to capitalize on it.

GBP/USD Technical Analysis

Pound/dollar has failed to recapture the broken double-bottom of 1.3785, a bearish sign that has led to further falls. Momentum is to the downside and the pair is trading below the 50, 100 and 200 Simple Moving Averages. The Relative Strength Index (RSI) is flirting with 30, thus on the verge of oversold conditions.

Support is at 1.3680, a swing low from late July, which is just below the daily low. Fruther down, 1.3649 and 1.3595 were the limits of a range the pair traded in back then.

Resistance is at 1.3725, which provided support earlier this week, and then at 1.3760 and 1.3785 mentioned earlier. Further above, 1.3830 is the next level to watch.