GBP/USD Forecast: Gains Above 1.31 Look Shallow amid USD Strength
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- On Tuesday, the GBP/USD pair gained positive momentum amid moderate weakness in the US dollar.
- Demand for safe-haven dollars decreased as stock markets stabilized.
- With the Fed’s hawkish expectations, the dollar is limited in its losses and upside potential.
The GBP/USD forecast remains neutral to bearish as the hawkish Fed weighs on the risk assets while the Russian crisis puts fuel on the fire. As the European session began, the GBP/USD exchange rate rose and then retreated slightly from the mid-1.3100 range amid a lack of optimism.
Stable equity markets
After yesterday’s price action, the GBP/USD pair attracted buying interest on Tuesday, supported by a slight weakness in the US dollar. Stock market stability reduced demand for traditional safe-haven assets and prevented the dollar from capitalizing on growth over the past three days. Despite the uncertainty surrounding Ukrainian affairs and dovish Fed expectations, the dollar continued to enjoy tailwinds, and its upside potential was limited.
Consequences of Russian aggression
Prospects of fresh sanctions against Russia over its alleged war crimes in Ukraine continue to spook the market. The massacre in Bucha was blamed by Ukraine on Russian forces. Christine Lambrecht, the defense minister, then approached the European Union about stopping Russia’s gas imports. However, incoming geopolitical headlines have dashed a diplomatic solution to end the war, which will dampen market expectations of an upside.
Fed’s aggressive rate hike
Additionally, investors expect the Fed to act more aggressively by hiking rates by 100 basis points in the next two meetings to combat persistently high inflation. Rising US Treasury yields also helped, providing additional support to the US dollar. As a result, the market will pay close attention to the FOMC meeting minutes released on Wednesday. In the meantime, traders should avoid aggressive bullish bets on GBP/USD.
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What’s next to watch for GBP/USD forecast?
In economic data, the UK services PMI in March was revised to 62.6 from 61 in a preliminary estimate, but bulls were unimpressed. Accordingly, the GBP/USD pair appears to be moving down the path of least resistance. The US ISM Services PMI is now expected to be released soon. This, along with bond yields in the US and recent developments surrounding the Russia-Ukraine saga, may affect dollar price momentum.
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GBP/USD price technical forecast: Bears looking for a breakout
The GBP/USD price is toying with the key moving averages on the 4-hour chart. The convergence of SMAs shows a potential breakout. We can expect a breakout since the pair has been oscillating in a tight range for the past few weeks. The chart shows an ascending triangle pattern which is a sign of bearish trend reversal. If it happens, the bears will aim for the double bottom at 1.3000.
