Midway through this week’s trading, the British pound sterling recovered from losses that brought it to the support level of 1.2300, its lowest in five months. The pound’s gains were fueled by a stronger-than-expected UK Purchasing Managers’ Index (PMI) report, showing an accelerated economic recovery in April. Additionally, a key Bank of England official’s speech tempered recent market expectations of imminent interest rate cuts.Bank of England Chief Economist Hugh Bell warned that the bank’s stance on UK interest rates remains unchanged, cautioning against overly early monetary policy easing and emphasizing the risk of doing so too late.Meanwhile, the US dollar remained under pressure following a weaker-than-expected US Purchasing Managers’ Index (PMI), marking its lowest levels in four months, boosting hopes that the US inflation downtrend has not completely dissipated. Consequently, market analysts noted, “Markets have softened slightly on the mixed policy outlook that propelled the US dollar higher this year. While there is ample evidence that the US economy continues to outperform its global counterparts, Standard & Poor’s Global business activity data recently released shows slowing activity in the United States. It expanded in April at the slowest pace in four months.”Following the data, financial market pricing indicates investors now foresee two interest rate cuts by the US Federal Reserve this year, leading to declines in US yields and the US dollar. Analysts added, “GBP/USD has rebounded more than one cent from its five-month low of $1.23, although it remains stuck in the downward trend channel since mid-March.”Ultimately, the outcome of expectations for US interest rate cuts will determine the direction of the dollar, as most analysts caution against further strength. An analysis conducted by ING Bank suggests that further weakness in the pound sterling in the near term is indeed a risk. Chris Turner, a currency analysis expert at ING Bank, anticipates that the greater divergence in interest rate cycles between the Bank of England and the US Federal Reserve will have a “particular impact on the GBP/USD pair.”The Bank of England is expected to cut interest rates in June or August before the US Federal Reserve does so. Therefore, Joseph Capurso, an analyst at Commonwealth Bank, suggests that some market analysts are now discussing the possibility of the US Federal Reserve raising interest rates again after a long period of stability. Furthermore, the US Federal Reserve still expects the next move to be a cut, but it warns that if it raises interest rates, it will do so at least twice.ING Bank analysts further added that more decline in interest rate differentials between the US and Britain, due to increased bets on interest rate cuts from the Bank of England, will lead to further weakness in the pound sterling against the dollar.
 Technical forecasts for the GBP/USD pair today:The GBP/USD price has now risen to trade at a few levels above the 100-hour moving average line. As a result, the currency pair appears to be approaching overbought levels of the RSI on the 14-hour frame. In the near term, and according to the performance on the hourly chart, the GBP/USD pair is trading within an ascending channel formation. Also, the RSI on the 14-hour frame appears to be supporting the upside trend in the short term as it approaches overbought levels. Therefore, the bulls will look to ride the current rally towards 1.2479 or higher to the 1.2503 resistance. On the other hand, the bears will target potential pullbacks at around 1.2420 or lower at the 1.2400 support.In the long term, and according to the performance on the daily chart, it appears that the GBP/USD currency pair is trading within a descending channel. However, the 14-day RSI has been bouncing recently to avoid falling into oversold levels. Therefore, the bulls will target extended bounces at around 1.2566 or higher at 1.2680 resistance. On the other hand, the bears will look to extend current declines towards 1.2343 or lower to 1.2200 support.More By This Author:GBP/USD Analysis: Strong Selling PressureUSD/JPY Analysis: New Record HighsUSD/JPY Analysis: Uptrend Until Japanese Intervention