GBP/USD Daily Forecast – Test Of Support At 1.3980

U.S. Dollar Tries To Gain More Ground Against British Pound

GBP/USD is currently trying to settle below 1.3980 while the U.S. dollar is gaining ground against a broad basket of currencies.

The U.S. Dollar Index continues to move higher after yesterday’s hawkish message from the Fed. Currently, the U.S. Dollar Index is trying to settle above the resistance at 91.50. In case this attempt is successful, the U.S. Dollar Index will move towards the next resistance level at 91.80 which will be bearish for GBP/USD.

Yesterday, the U.S. dollar gained strong upside momentum after the Fed changed its inflation forecast for 2021 and stated that inflation may be higher than previously expected.

The forecast for future rates was changed as well. The Fed expects that Federal Funds Rate will grow to 0.6% in 2023. Forecasts for 2021 and 2022 remained unchanged. In addition, the Fed made no changes to the quantitative easing program.

At first glance, it may seem that markets are reacting to the potential rate hike in 2023. However, it looks that inflation fears are the real driver of the latest move. The yields of 10-year Treasuries have quickly jumped from 1.49% to 1.58%, indicating that bond traders have started to price in higher inflation. If yields move higher, the U.S. dollar will get more support in the upcoming trading sessions.

Technical Analysis

GBP/USD managed to get below the support at 1.4000 and is trying to settle below the next support level at 1.3980. In case this attempt is successful, GBP/USD will head towards the support at 1.3950.

A move below 1.3950 will push GBP/USD towards the support at 1.3920. If GBP/USD gets below this level, it will move towards the next support level at 1.3900.

On the upside, GBP/USD needs to settle back above 1.4000 to have a chance to develop upside momentum in the near term. The next resistance level is located at 1.4020. If GBP/USD manages to settle above this level, it will head towards the resistance at 1.4050.

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