- Summary:
- GBPUSD is on the way up as the pair overcomes a crucial psychological barrier, with the yield on US treasuries falling. Is it sustainable?
GBPUSD has returned to the 1.2680 territory for the first time in 21 days. The pair has been on an uptrend since February 15th, with the pound on a 4-session winning streak. GBPUSD traded at 1.2680, a gain of +0.04%, at the time of writing. However, a myriad of factors will be at play on Monday, and this could tilt the scales in either direction.
What could change for the cable?
The Fed is certainly not in a hurry to cut interest rates, as the focus remains on bringing down inflation to 2%. Nonetheless, recent comments by FOMC members point to a likely easing of the constrictive monetary policy in the second quarter of the year. Meanwhile, traders have locked in the hawkish Fed stance and this should help cushion the dollar against aggressive advances by other currencies.
The pound, meanwhile, seems to have shaken off concerns over the UK’s technical recession. Notably, traders have cast their lots in view of the improved Purchasing Managers Index (PPI) reading released last week. The UK economy contracted in the third and fourth quarters of 2023, but analysts agree that the sum total 0.5% contraction is unlikely to impact the economy adversely. Furthermore, BoE Governor Andrew Bailey, in his testimony in the UK parliament last week, exuded confidence that the economy is on a recovery path. At the core of this is a resilient labour market and easing inflationary pressures.
GBPUSD will get its first dose of activation energy on Monday when BoE Chief Economist Huw Pill speaks. Traders will be keen on picking cues on the balance between the performance of the UK economy and the BoE’s monetary policy. Later in the day, the US will Census Bureau will release its figures for building permits issued over the past week.
However, the most impactful release by the institution will be the New Home Sales data. The statistics show the strength of the property market and ultimately used to measure the performance of the US economy. The figure stood at 664k during the last reading, and is expected to grow to 680k. The dollar’s advances, if any, however, will be weighed down by US Treasury yields for 10 and 5-year bonds, which had fallen by as much as 3 basis points early Monday.
Technical analysis
The pair looks to pivot at 1.2674 on the 30-minute chart and shows bullish momentum. The buyers need to retain control above this point to stand a chance of breaking the 1.2682 resistance. A break past that level could build momentum to test 1.2689. Alternatively, the pair could have low momentum if the sellers are in control under 1.2674. This could breach the 1.2664 support, at which point the bullish view will become invalid. Extended seller control could see the support move further lower to 1.2654.
