- GBP / USD gains strong positive traction for the second day in a row amid a weaker dollar.
- Upbeat signals from the BoE and abatement of fears of a new Brexit-related dispute benefit the British pound.
- Rising expectations of an early Fed rate hike do not impress USD bulls or stop the pair’s upward movement.
The pair GBP / USD has spiked to two-week highs during Thursday’s European session, with the bulls now looking to take advantage of momentum beyond the round 1.3700 level. At the time of writing, the pair is holding firm near the daily highs around the 1.3720 level.
The US dollar has struggled to preserve its modest intraday gains and encountered fresh selling on Thursday, extending the fall of the previous day’s retracement from 13-month highs. A softer tone around US Treasury yields it has weighed on the USD, which has been further pressured by risk appetite in the markets. This, in turn, has been seen as a key factor pushing GBP / USD higher for the second day in a row.
The report of the US CPI released on Wednesday showed continued rise in inflationary pressures. Investors, however, still appear unconvinced of a sustained period of inflation, which was bolstered by a decline in US bond yields. This, to a greater extent, overshadowed the minutes of the FOMC meeting, which indicated that the us central bank is still on track to start reducing its bond purchases in 2021.
In addition, a growing number of policy makers were worried that inflation could persist, forcing investors to anticipate the likely timing of a possible Fed rate hike. Markets now appear to be waiting for the possibility of an initial rate hike in September 2022 compared to December 2022. The events, however, did little to impress the USD bulls or stop the continued positive momentum of the GBP / USD pair.
Secondly, sterling has gained some support from easing concerns about the UK-EU showdown on the Northern Ireland Protocol. The EU offered on Wednesday to reduce customs controls and paperwork on British goods destined for Northern Ireland. This comes after Bank of England officials signaled an impending rate hike, which continues to support the British pound.
With the last move up, GBP / USD is now up about 150 pips from weekly lows touched on Tuesday and is still on track to be appreciated even more. Market participants are now looking forward to the US economic calendar, with the release of the IPP producer price index and initial weekly jobless claims. This, coupled with US bond yields and scheduled speeches from influential FOMC members, will sway the USD and could generate further momentum for the GBP / USD pair.
GBP / USD technical levels
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