GBP/USD Price Forecast: GBP may recover if it manages to hold above $1.3175

• The Omicron variant and its potential impact on global economic recovery brought back the safe-haven appeal in the market.
• Christopher Waller said that the Fed might start increasing its interest rates soon.
• A spike in selling pressure and a breakout of 1.3175 could trigger a selling trend until the 1.3157 or 1.3085 levels.

The GBP/USD price forecast seems bearish as the pair has plunged to retest the support level of $1.3175. Previously, the GBP/USD closed at $1.3229 after setting a high of $1.3246 and a low of $1.3223. The direct currency pair dropped for another session and remained low on Friday amid the strength of the US dollar and rising risk-off market sentiment.

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The stronger US dollar continues to weigh on GBP/USD.

The US Dollar Index (DXY), which measures the value of the US dollar against a basket of six major currencies, was high on Friday at 96.69 after it recovered most of its previous daily losses. The strength in the dollar was accumulated by the positive comments from Waller and the prevailing risk-off market sentiment. 

Christopher Waller remarks on Fed policy

The Governor of the Federal Reserve, Christopher Waller, said that the Fed might start increasing its interest rates shortly, especially after winding up its asset purchase tapering in March 2022. He said the expectations of labor market recovery and inflation conditions have been supporting a rate hike right after the winding down of asset tapering by the Federal Reserve. The market reaction to the news of a potential timeline for interest rate hikes pushed the US dollar higher and weighed on the GBP/USD.

COVID-19 concerns – Omicron triggers a safe-haven appeal

The worsening conditions associated with the spread of the Omicron variant and its potential impact on global economic recovery reintroduced the market’s safe-haven appeal. Thus, it weighed on the riskier currency pairs like GBP/USD. The British pound, a relatively riskier currency, came under pressure after the number of Omicron cases recorded across the UK hit almost 25,000 on Friday. It was more than 10,000 cases from Thursday. The UK Health Security Agency reported seven deaths caused by the Omicron variant on Thursday.

The UK government’s Scientific Advisory Group for Emergencies (SAGE) suggested a further tightening of restrictions to avoid the spread of the Omicron variant. London Mayor Sadiq Khan also declared a “major incident” over Omicron to allow for closer coordination between public agencies and central government support because the COVID-19 hospital admissions rose by about 30% this week in the city.

Meanwhile, Germany also put the UK on a list of COVID high-risk countries, which means tight travel restrictions will be imposed. According to the German Ministry of Foreign Affairs, the UK and Northern Ireland were strongly affected by COVID-19, and from Sunday midnight, travel restrictions will be imposed. This news also added negative pressure on GBP, as reflected in the declining prices of GBP/USD on Friday.

GBP/USD price forecast- Daily technical levels

Support Resistance

1.3220 1.3243

1.3210 1.3256

1.3197 1.3266

Pivot Point: 1.3233

GBP/USD price forecast- Triple bottom pattern to underpin at $1.3175 

Despite the Bank of England’s interest rate rise, the GBP/USD price outlook remains pessimistic. The GBP/USD pair surged to retest the 1.3370 resistance level but failed to cross. As a result, the closing candle below 1.3117 initiated a sell-off in Sterling.

In the 2-hour timeframe, the GBP/USD has closed a “Three White Soldiers” pattern. Typically, such a pattern signals a strong selling bias in the market. Therefore, the odds of a selling trend dominating the market are high. On the bearish side, the GBP/USD’s significant support prevails at 1.3175. A break below this level uncovers the GBP/USD price towards 1.3157 and even lower towards 1.3085.

Conversely, a spike in bullish pressure, especially above 1.3175, can trigger a bounce off until 1.3230 and 1.3267. The leading technical tools like the RSI and Stochastic RSI hold below 50, indicating a selling trend. Moreover, the recent bearish crossover below the 50-day exponential moving average also supports a selling trend in the GBP/USD. Therefore, a spike in selling pressure and a breakout of 1.3175 could trigger a selling trend until the 1.3157 or 1.3085 levels. Good luck, and stay tuned for more updates!