- GBP / USD gains traction on Wednesday and builds on the previous day’s rebound from week-long lows.
- The rally is solely due to some strength stemming from a decline in the EUR / GBP cross.
- The rise appears limited ahead of the FOMC decision on Wednesday and the BoE meeting on Thursday.
The pair GBP/USD has finally broken its intraday consolidation range and has soared to new daily highs, around the 1.3930 region, at the start of the European session on Wednesday. At time of writing, the pair is pulling back slightly although it remains positive above the 1.3900 level.
The pair has regained some positive traction on Wednesday and now seeks to take advantage of the previous day’s rebound from near the 1.3800 region, at one-week lows. The rally has lacked an obvious fundamental catalyst and could only be attributed to some strength stemming from a further downward movement in the EUR / GBP cross.
However, a combination of factors could prevent GBP / USD bulls from opening aggressive positions and limiting any uncontrolled movements in the pair. It is likely that the pound sterling is affected by the fact that the EU took legal action against the United Kingdom for violating the Northern Ireland protocol and the pessimistic comments of the Governor of the Bank of England, Andrew Bailey.
Bailey said the central bank is committed to buying bonds at a high rate and was also cautious about the economic recovery.. The market took this as an early sign of a possible downward revision to the central bank’s economic forecast and could cap any significant gains for the British pound ahead of the BoE meeting on Thursday.
On the other hand, The US dollar has been supported by prospects for a relatively faster US economic recovery and high US Treasury yields.. This, coupled with expectations of higher government borrowing and speculations of a pickup in US inflation, has kept the benchmark 10-year US bond yield near one-year highs.
Having said that, expectations that the Fed could take action to curb any further increases in the cost of long-term borrowing they have acted as a headwind for US bond yields and limited their rise. Therefore, the key focus of attention will continue to be the outcome of the FOMC’s monetary policy meeting, scheduled to be announced during today’s American session.
GBP / USD Technical levels to follow
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