The GBP/USD exchange rate had a hard time moving above the 1.42 level. Despite the ongoing weakness in the greenback, cable met stiff resistance and was rejected four consecutive times.
The weak dollar theme dominated financial markets for the last couple of months. It is truly difficult to find a reason to buy the dollar when the Fed remains accommodative despite the GDP growing by over 6% annualized and inflation threatening to overshoot the target. Also, the US Government has just announced that it intends to increase its budget for the fiscal year ahead and the upcoming years, raising it to over $8 trillion by 2031. Hence, buying the dollar is only for the brave.
Yet, despite the dollar making new lows and trading with a weak tone all month, some signs of strength do appear on the horizon. Investors fear inflation, but higher inflation does not necessarily mean a falling dollar, particularly if we consider that the greenback, despite everything mentioned above, remains the undisputed world’s reserve currency.
Bears may want to stay on the short side with a stop at 1.4250 and targeting a move to 1.40 and below. A daily close below 1.41 should trigger more weakness, especially if it comes ahead of the end of the trading month.
Follow Mircea on Twitter.
