- A combination of factors prompts aggressive short covering around GBP/USD on Tuesday.
- The British pound is supported by better than expected national employment figures.
- The change in risk sentiment weighs on the safe-haven USD and supports the pair’s upside move.
- Now the focus is on US retail sales and Fed Chairman Jerome Powell’s remarks.
The pair GBP/USD moves strongly higher during the European session on Tuesday, reaching almost two-week highs around the 1.2480 region. At time of writing, the pair pulls back slightly and consolidates around 1.2460, still gaining over 1.10% on the day.
The British pound strengthened on Tuesday after the UK Office for National Statistics reported that the number of people who applied for unemployment benefits fell by 56,9000 in April. This figure is well below expectations for a drop of 38,800 and the decline of 46,900 recorded the previous month. Besides, ILO UK unemployment rate down from 3.8% previously to 3.7%.
Apart of this, current US dollar profit taking from a two-decade high helped the GBP/USD pair take advantage of its recent rebound from the 1.2155 region, or the lowest level since September 2020. The pair gained traction for the third day in a row, executing some short-term stop orders placed around the round level of 1.2400. Subsequent strength may have already laid the groundwork for further short-term gains.
Having said that, UK and EU impasse over Northern Ireland protocol could act as a headwind for sterling. UK Foreign Secretary Liz Truss will outline how the Government plans to change the rules on goods moving between Great Britain and Northern Ireland and how you could undo parts of the Brexit deal. Also, the Bank of England’s warning that the British economy will enter a recession this year could cap GBP/USD’s gains.
Investors may also be reluctant to open aggressive positions, preferring to wait on the sidelines ahead of key US macro data and Fed Chairman Jerome Powell’s appearance later on Tuesday. In the US economic calendar, the publication of monthly retail sales figures stands out. Meanwhile, Powell’s statements will be analyzed for clues about the possibility of a 75 basis point rate hike in Junewhich will weigh on the dollar and provide a further boost to the GBP/USD pair.
GBP/USD technical levels
Source: Fx Street
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