GBP/USD has recently moved well into positive territory, embarking upon a steady climb amid increasing pressure on the U.S. dollar. A mixture of weak economic indicators in the United States and changes in monetary policy have allowed the sterling to gain a foothold. The forex market is being quick to respond as traders shift their positions with changing sentiments regarding inflation, interest rates, and macroeconomic performance.
This latest wave marks a quick reversal from the previous weeks when the U.S. dollar had shown strength. The dollar is now witnessing selling pressure due to signs of sluggish growth in the United States and dovish comments from the Fed, leaving the pound on the winning side.
Weakening US dollar underpins GBP/USD ascent
U.S. dollar weakness is the major propelling force behind the pound’s recent gains on the GBP/USD. The latest batches of U.S. economic data point at some softening in the labor market with hints of softer retail spending. Those stats made many market participants believe that the Fed was nearing the end of its rate-hiking exercise, or at very least, might take a pause much longer than was previously thought.
As demand for the U.S. dollar decreased, so too did demand for currencies such as the pound, which strengthened. The GBP/USD responded by gaining strength above the resistance at 1.2700, suggesting a possible change in trend.
Bank of England Holds Steady
The approach of the Bank of England (BoE) has been deliberate and steady as compared to the uncertainty surrounding the Fed. Although the BoE has not raised rates aggressively in the last few meetings, it does have a tinge of cautious optimism with respect to the ongoing inflation in the U.K.
This stability does lend some support to the pound, particularly against fears that a central bank divergence would otherwise drag down the currency. The stable stance of the BoE contrasts the Fed’s indecisiveness and helps keep sentiment off balance regarding sterling.
Technical Breakout Signals Bullish Momentum
GBP/USD is showing increasing bullish momentum with the breakup of a key technical resistance at 1.2700 after consolidation for several sessions. This breakout accompanied by increasing volume with active watching by traders as an interesting entry was triggered for additional upward push.
Relative Strength Index (RSI) and Bollinger Bands are supportive of the bullish case; however, they require some caution. Any major events occurring on the U.S. economic front or geopolitical situation could reverse the gains of the pair quite quickly, especially under the very fragile climate of global finance.
Market High Caution Remains
Although the recent gains in GBP/USD appear to be encouraging news for bulls, there are still a number of headwinds that may influence the pair’s direction. The ongoing uncertainties surrounding the U.S. debt ceiling, the economic slowdown in China, and Eastern European tensions continue to add to the current uneasy global climate.
Trade remains cautious under this broader risk umbrella, with many closely watching for any unofficial comments from central bank policy makers that might change the current trend. Very small tone changes from either the Fed or BoE can cause ripples through their markets.
Watch Outs Going Forward
Looking forward, the market is more about the Legislature in the forex community as they wait for other economic reports, such as the UK GDS numbers and the US inflation figures, which could then determine the fate of GBP/USD, whether it will climb higher or return to consolidation range.
For now, however, the upward movement of the pair is a reflection of the larger narrative in the market on the potential of a less aggressive Fed, while the pound itself may have much space for additional upward movements if the BoE also remains firm in its policy stance.
