GBP/USD Forecast: Buyers refuse to give up as focus shifts to Powell

GBP/USD has regained its traction and climbed to the 1.2000 area early Wednesday after having declined toward 1.1950 earlier in the day. The pair's next directional movement could be driven by the market reaction to FOMC Chairman Jerome Powell's remarks on the policy outlook later in the day.

Bank of England (BoE) Chief Economist Huw Pill said on Wednesday that he is expecting inflation to fall "rapidly" in the second half of 2023. Pill further noted that they have more to do on rates in the coming policy meetings but added that his base case does not involve the policy rate reaching 5.25%. These comments failed to impact the Pound Sterling's valuation in a noticeable way and the improving market mood allowed GBP/USD to edge higher.

Reflecting the improving market mood, the UK's FTSE 100 Index is up more than 0.5% and US stock index futures trade modestly higher on the day.

In the late American session, FOMC Chairman Jerome Powell will deliver a prepared speech on the economic outlook, inflation and the labor market. Following the speech, Powell will respond to questions.

This will be Powell's last chance to deliver a message to markets before the blackout period starts on Saturday, December 3. Bloomberg reported earlier in the week that Powell could open the door for slower rate increases. The CME Group FedWatch Tool shows that markets are pricing in a less than 70% chance of a 50 basis points (bps) Federal Reserve rate hike in December. The market positioning suggests that the US Dollar could come under strong selling pressure in case Powell confirms a 50 bps hike. In that scenario, a risk rally to lift major equity indexes in the US and put additional weight on the safe-haven US Dollar. 

On the other hand, GBP/USD could turn south in case Powell pushes back against optimism about inflation having peaked and reminds markets that the terminal rate will be revised significantly higher even if they were to opt for a smaller hike at the last policy meeting of the year.

GBP/USD Technical Analysis

GBP/USD latest action reaffirmed that strong support seems to have formed at 1.1950 (Fibonacci 23.6% retracement of the latest uptrend. On the upside, the 1.2000/1.2010 area (psychological level, 20-period Simple Moving Average (SMA)) aligns as immediate resistance. In case the pair stabilizes above that hurdle, it could target 1.2100 (psychological level, static level) and 1.12150 (end-point of the uptrend).

With a four-hour close below 1.1950, sellers could take action and drag GBP/USD lower toward 1.1900 (psychological level) and 1.1850 (100-period SMA, Fibonacci 38.2% retracement).