British Pound Records Best Day Since October 2020, GBP/USD Crosses Resistance
FORECAST FOR THE ENGLISH POUND:
- GBP/USD soars on Tuesday, posting its biggest one-day rise since October 2020
- Sterling’s gains are supported by strong UK employment data and broad-based US dollar weakness
- This article takes a look at the key technical levels in Cable to watch in the near term
Most read: USD Technical Analysis – DXY, EUR/USD Reverses After Extreme Sentiment
The pound surged on Tuesday, supported by broad-based US dollar weakness, but more importantly, strong economic data in the UK. In late trading in the New York session, GBP/USD rose 1.3% to 1.2482, posting its largest one-day gathering since October 2020.
Earlier today, UK employment figures showed the country added 83,000 workers in February, exceeding expectations for a net increase of 5,000 jobs generously. With this result, the unemployment rate fell from 3.8% to 3.7%, reached its lowest level in nearly half a century.
Although a single or Individual report does not materially change the overall outlook, today’s data helped ease fears that the economy is headed for a slow-down and increased the likelihood that the Bank of England will have to raise interest rates more forcefully to ensure that rising nominal wages, a product of tight labor markets, do not exacerbate inflation already very high.
The British pound is also supported by external forces. The general decline of the greenback on the foreign exchange market, triggered by improved feelingalso benefits riskier currencies, who have sold off in recent weeks for fear that the global economy could fall off the cliff and get stuck in a stagflationary environment.
For the future, FOMC President Jay Powell ruled out more aggressive interest rate hikes, so we may have peaked Fed aggressiveness for now, barring new inflation surprises. This can cause Treasury yields to top exit around recent highs, depriving the US Dollar of a key bullish catalyst.
Meanwhile, the BoE, with its credibility at stake and a double-digit CPI in the second half, could start tightening rates more forcefully to restore price stability. In fact, the markets are pricing in a 30% chance that the bank will resort to a 50 bprate hike at its June meeting following today’s employment data (bets could consolidate in the coming days). Against this backdrop, GBP/USD could rise in the near term, but sustained gains are unlikely given the fluent headwinds facing the UK economy.
In terms of technical analysis, the GPB/USD broke a key ceiling in the 1.2400 area. If the buyers maintain control of the market over the next few sessions, we could see a move towards 1.2650 in the near term. On the other hand, if the sellers return and push the trade lower, the initial support now stands at 1.2400. On further weakness, focus shifts to the 2022 low around 1.2165.
GBP/USD TECHNICAL CHART
GBP/USD chart prepared using TradingView
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—Written by Diego Colman, Market Strategist for DailyFX