• GBP/USD has turned north and climbed above 1.2100.
  • The pair approaches key resistance that aligns at around 1.2150.
  • US Dollar could face additional selling pressure in case risk rally continues.

GBP/USD has preserved its bullish momentum early Thursday after having registered strong daily gains on Wednesday. The pair trades in positive territory above 1.2100 and remains on track to test the key resistance area that seems to have formed near 1.2150.

The broad-based selling pressure surrounding the US Dollar fueled GBP/USD rally mid-week. After FOMC Chairman Jerome Powell reaffirmed that smaller rate hikes could come as early as December, the CME Group FedWatch Tool's probability of a 50 basis points (bps) rate hike at the next policy meeting jumped to 80% from 66%.

Powell further added that they have made substantial progress toward a "sufficiently restrictive policy," further weighing on the USD. The benchmark 10-year US Treasury bond yield fell nearly 4% as a result and the US Dollar Index lost 1%. As of writing, the index was down 0.25% on the day at 105.60.

In the second half of the day, the Personal Consumption Expenditures (PCE) Price Index and the ISM Manufacturing PMI data from the US will be looked upon for fresh impetus. 

The annual Core PCE Price Index is forecast to edge lower to 5% on a yearly basis in October from 5.1% in September. A reading below 5% is likely to cause the US Dollar to continue to weaken against its rivals. On the other hand, an unexpected increase in the Core PCE inflation figure could help the currency stay resilient against its rivals. Nevertheless, if Wall Street's main indexes continue to push higher regardless of the inflation report, GBP/USD is likely to continue to stretch higher.

The headline ISM PMI is expected to drop into the contraction territory below 50. The Prices Paid component of the survey is also projected to stay below 50 and reveal a further decline in input inflation in the manufacturing sector. The only scenario where the PMI report could trigger a US Dollar rebound would need to include both of these numbers arriving above 50.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the four-hour chart rose to 60 in the European morning, pointing to a buildup of bullish momentum. The 200-day Simple Moving Average (SMA) forms significant resistance at 1.2150, where the multi-month high set on November 14 is also located. In case GBP/USD rises above that hurdle and starts using it as support, it could target 1.2200 (psychological level) and 1.2275 (August 10- high).

On the downside, 1.2100 (psychological level) aligns as interim support ahead of 1.2000 (psychological level, 50-period SMA on the four-hour chart).

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