GBP/USD erases gains and retraces below 1.2300 post-Fed’s Powell appearance at the US Congress

• UK inflation remains at 40-year highs and rose by 9.1% YoY.
• Fed Chief Powell commented that the central bank is committed to bringing inflation down, though accepted that higher interest rates could cause a recession.
• GBP/USD Price Forecast: In the near-term upward biased.

The British pound remains on the defensive and is edging lower on Wednesday, down by a minimal 0.04% in the North American session. At 1.2272, the GBP/USD remains below the 1.2300 figure, despite a hotter than expected UK inflation, while the US Federal Reserve Chairman Jerome Powell testifies in the US Senate.

The GBP/USD reached daily lows around 1.2160 during the day but recovered some ground later in the day, registering a daily high at 1.2314. UK inflation heightened to 40-year highs at 9.1% YoY and was the cause of the pound’s fall. Traders should remember that the Bank of England (BoE) forecasted inflation to rise as high as 11% and projected a contraction by 2023.

Financial analysts have priced in a 25 bps rate hike by the BoE at its August meeting. The chances of a BoE’s 50 bps rate hike are at 81%, as shown by STIRs.

In the meantime, US Federal Reserve Chairman Jerome Powell is grabbing the headlines. In his opening speech, he said the Fed is “strongly committed to bringing inflation back down.” Additionally, he stated that data and decisions would determine the pace of rate hikes, which will be made “meeting by meeting.”

Powell also acknowledged that hiking rates could tip the US economy into a recession and called that a soft landing will be “very challenging.”

Meanwhile, the US Dollar Index, a gauge of the buck’s value vs. a basket of six currencies, remains on the defensive, dropping 0.34%, sitting at 104.063, while the US 10-year Treasury yield got no support from Powell, down twelve basis points, yielding 3.162%.

In the week ahead, the UK economic docket will reveal the S&P Global/CIPS Manufacturing, Services, and Composite PMIs. Across the pond, the US calendar will feature Fed Chief Jerome Powell’s second day at the US Congress, Initial Jobless Claims, and S&P Global PMIs.

GBP/USD Price Forecast: Technical outlook

The GBP/USD daily chart shows that the major is still downward biased. However, price action in the last five days is consolidating around the 1.2156-1.2300 range after the pair jumped from YTD lows. That, alongside the Relative Strenght Index (RSI), albeit in bearish territory, begins to aim higher.

That said, the GBP/USD’s path of least resistance in the near term is upwards. The major first resistance would be 1.2300. Break above would expose June’s 16 high at 1.2406, followed by the 50-day moving average (DMA) at 1.2510.

Key Technical Levels