- GBP / USD consolidates the strong gains of the previous day to the highest level since the end of February.
- A rally in US bond yields and a weaker risk tone support the USD as a safe haven and limit gains.
- The drop appears to be supported amid an upbeat UK economic outlook and ahead of Bank of England Governor Andrew Bailey.
The pair GBP/USD is extending its consolidation move during the first half of the European session on Tuesday, caught between a range just above the 1.4100 level. At the time of writing, the pair remains in the region of daily highs near 1.4140.
A modest strength in the US dollar has not helped the pair to take advantage of the previous day’s strong positive move to the highest level since February 25, led by the Scottish election result. It is worth mentioning that Nicola Sturgeon’s Scottish National Party (SNP) recorded its fourth consecutive victory, but failed to achieve an absolute majority. The result reversed the risk of an impending Scottish referendum on UK independence, which, in turn, prompted aggressive short hedging around the British pound.
In the meantime, a rebound in US Treasury yields has It allowed the USD to build on the previous day’s rebound from more than two-month lows. As investors looked past Friday’s disappointing US NFP monthly employment report, speculation that rising inflation could force the Fed to tighten its monetary policy sooner rather than later they pushed US bond yields higher. Aside from this, a sharp drop in global stock markets has forced investors to take refuge in the safe-haven US dollar. This has been seen as a key factor that has limited the rise of the GBP / USD pair.
However, The decline is likely to remain supported amid growing optimism about the UK’s economic recovery from the pandemic amid a sharp drop in deaths and new cases from COVID-19. Indeed, UK Prime Minister Boris Johnson confirmed on Monday the next stage of easing the blockade in England. The optimistic outlook was reaffirmed by NIESR on Monday, which raised its growth forecast for 2021 to 5.7% from the 3.4% seen in February.. The economic think tank predicts that the UK economy will return to pre-pandemic levels by the end of 2022. This could act as a tailwind for the British pound.
From a technical perspective, Tuesday’s price action is still could be classified as a consolidation phase after strong gains of more than 250 pips recorded in the last two trading days. Therefore, any significant drop could be seen as a buying opportunity, suggesting that the path of least resistance for the GBP / USD pair remains to the upside. That said, the bulls could wait for the speech scheduled by Bank of England Governor Andrew Bailey before positioning themselves for any further upside amid the absence of relevant UK or US economic releases.
GBP / USD technical levels
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