GBP/USD Forecast: Fed fuels ascent toward 1.40, only overbought conditions could halt the rally

• GBP/USD has extended its gains in response to the dovish Fed decision.
• Uncertainty about UK covid cases and US GDP are set to determine the next moves.
• Thursday's four-hour chart is showing cable is in overbought territory. 

"More ground to cover" – the Federal Reserve has said it is waiting for more data before tightening, and that has sent GBP/USD to the highest in a month. While the Fed has expressed content at the progress of the US economy – and has had its first debate about the timing of tapering bond buys – there seems to be no rush.

The Washington-based institution reiterated its view on rising inflation as merely transitory, a price shock resulting from the rapid reopening that is unlikely to turn into persistently high inflation. It also noted that millions of Americans have yet to return to work and noted risks due to the Delta covid variant – albeit having a reduced impact than beforehand. 

The Fed creates $120 billion per month and keeping that pace devalues the currency. Fed Chair Jerome Powell added fuel to the fire by refraining from circling the bank's Jackson Hole Symposium in late August as the time to pre-announce tapering its bond buys. 

• FOMC : The statement giveth and Powell taketh away
• Fed Analysis: Powell only takes a baby step toward tapering, why the dollar could dive

The greenback has been on a consistent downtrend, while the pound continues benefiting from positive developments in Britain. While the UK reported a bump up in coronavirus cases on Wednesday, the rate of roughly 27,000 is well below the peak above 50,000. The Brexit front is also calm after the EU suspended its legal action related to the Northern Irish protocol.

Jumping back to America, Thursday's focus is the first release of second-quarter Gross Domestic Product figures. Economists expect a whopping leap of 8.6% annualized growth. Contribution of consumption, investment and exports – "good growth" will also be watched.

See US Q2 GDP Preview: Economy to continue to expand at strong pace

Lawmakers in Washington reached a deal on an infrastructure bill that already passed an initial procedural vote. The $1 trillion package still faces additional hurdles and was mostly priced in, but it adds to the positive market sentiment. 

Overall, the upbeat mood supports further gains for cable.

GBP/USD Technical Analysis

Pound/dollar is overbought – according to the Relative Strength Index (RSI) on the four-hour chart. It is tackling the upper end of the uptrend resistance line, and could suffer a rejection. Other indicators are upbeat, such as momentum and the fact that the pair is above the 50, 100 and 200 Simple Moving Averages.

The daily high of 1.3970 is the first line of resistance, followed by 1.40, the psychologically significant barrier. Further above, 1.4030 and 1.4070 await bulls.

Some support is at 1.3930, a resistance line from June, followed by 1.39, which held GBP/USD down earlier in the week. It is followed by 1.3845 and 1.3760.