GBP/USD Forecast: US spending and overbought conditions may (temporarily) stop sterling


  • GBP/USD has been rising amid an upbeat market mood and falling US yields. 
  • A refocus on US infrastructure plans may boost the dollar.
  • Monday's four-hour chart is showing cable is nearing overbought territory.

Worries about vaccine hesitancy? Not today, and not for sterling, that has shown no hesitation – GBP/USD is topping with 1.39, up some  200 pips from Friday's trough. The main factor boosting cable comes from dollar weakness, which is suffering a double-whammy of falling US Treasury yields and a risk-on mood in markets. However, this trend may reverse.

The world is cheering America's emergence from the coronavirus crisis, with robust US consumption seen as a catalyst for global growth. The demand for US bonds has also renewed, partly a correction and partly a reaction to upbeat demand in recent auctions. 

Change may come from developments on President Joe Biden's infrastructure spending plans. Several members of Congress are set to meet the Commander in Chief at the White House to discuss the details and move things forward. In the past, Biden opened the door to Republicans but still pushed through with substantial spending. Will that happen again?

If his $2.25 trillion expenditure drive gets a boost, it could cause a sell-off in bonds, thus pushing yields up and carrying the greenback higher for a ride. Moreover, the president wants to enact corporate tax hikes, something that Wall Street dislikes. If the current market rally comes to a halt, the safe-haven dollar may see fresh demand. 

While the UK continues benefiting from its rapid vaccination campaign, the US is catching up quickly. America has reached 40% of its population with at least one dose. 

All in all, cable's current run is significant but may end abruptly. 

GBP/USD Technical Analysis

Pound/dollar is benefiting from upside momentum on the four-hour chart and has surpassed the 200 Simple Moving Average on its way up. However, the Relative Strength Index (RSI) is tackling the 70 level – thus entering overbought conditions.

The crucial battle line is 1.3920, which was a peak in early April. It is followed by 1.3940 and by the psychological barrier of 1.40.

Support awaits at 1.3850, which held the pair back before its recent rally, and then by 1.3810 and 1.3780. 

The pause that refreshes: Are currency markets hesitant to run with US data?

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

Latest Forex Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD trades below 1.1450 despite disappointing US data

EUR/USD is having a difficult time gathering bullish momentum in the early American session and trades in the negative territory below 1.1450. The US Census Bureau reported on Friday that Retail Sales in December fell by 1.9%, missing the market expectation of a no-change by a wide margin.

EUR/USD News

GBP/USD drops below 1.3700 as dollar gains traction

GBP/USD stays under modest bearish pressure in the American session and trades below 1.3700. The US Dollar Index is clinging to modest daily recovery gains near 95.00 despite weaker-than-forecast macroeconomic data releases from the US.

GBP/USD News

Gold fluctuates in daily range above $1,820 after US data

Gold declined to $1,820 during the European trading hours but managed to edge higher toward $1,830 in the early American. The benchmark 10-year US Treasury bond yield retreated from 1.75% after the dismal US data, allowing XAU/USD to gain traction.

Gold News

Dogecoin price on track to hit new highs, rallying 16% with Tesla payments going live

Tesla announced that it accepts Dogecoin and cannot receive or detect any other cryptocurrency. Analysts have predicted an explosive rally in Dogecoin price, continuing the uptrend. 

Read more

Why did TSLA stock fall 7% on Thursday?

Tesla stock dumps on Thursday as tech takes a bath. TSLA shares fell nearly 7% to close at $1,031.56. Tesla support at the short-term pivot remains at $980.

Read more

Majors

Cryptocurrencies

Signatures