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GBP/USD Retreats as US Dollar Strengthens. Resistances Analysis

GBP/USD Retreats as US Dollar Strengthens, But Upside Potential Remains

After starting the week with three consecutive days of gains, GBP/USD has lost momentum and pulled back towards the 1.2400 level. The key resistance zone around 1.2480/1.2500 may now act as a crucial level, with potential buyers entering the market once it is confirmed as support.

During the first half of Wednesday's trading session, GBP/USD faced bearish pressure and dipped towards the 1.2350 area. The US Dollar (USD) gained strength due to safe-haven flows. However, the USD weakened later in the American session as risk sentiment improved following the US House of Representatives' passage of a bill to suspend the debt ceiling until January 1, 2025. Additionally, dovish comments from Federal Reserve (Fed) officials further weighed on the USD.

Both Philadelphia Fed President Patrick Harker and Fed Governor Philip Jefferson expressed their reluctance to raise rates in June. As a result, the probability of a 25 basis points rate hike at the upcoming policy meeting, as indicated by the CME Group FedWatch Tool, increased to over 60% from around 30% earlier in the day.

Despite the USD's resilience against other currencies in early Thursday trading, it is currently limiting GBP/USD's upside potential. However, considering the overall risk-positive market environment and the market's assessment of the Fed's rate outlook, the USD may struggle to outperform its major counterparts. Our analysis suggests a potential rebound at the resistance area, coinciding with the previous 78.6% Fibonacci retracement level, forming a new short setup.

Please note that these statements are for informational purposes only and should not be considered financial advice.