|

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?

Premium

You have reached your limit of 3 free articles for this month.

Start your subscription and get access to all our original articles.

Subscribe to PremiumSign In

Author

Yohay Elam

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

More from Yohay Elam
Share:

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

By subscribing you agree to our Terms and conditions.

Editor's Picks

EUR/USD remains below 1.1750 ahead of ECB policy decision

EUR/USD remains on the back foot below 1.1750 in the European session on Thursday. Traders move to the sidelines and refrain from placing any fresh directional bets on the pair ahead of the ECB policy announcements and the US CPI inflation data. 

GBP/USD stays defensive below 1.3400, awaits BoE and US CPI

GBP/USD oscillates in a narrow band below 1.3400 in European trading on Thursday. The pair trades with caution as markets eagerly await the BoE policy verdict and US consumer inflation data for fresh directional impetus. 

Gold holds losses below $4,350 ahead of US CPI report

Gold struggles to capitalize on the previous day's move higher and holds its pullback below $4,350 in the European session on Thursday. The downtick could be attributed to some profit-taking amid a US Dollar bounce. All eyes now remain on the US CPI inflation data. 

BoE set to resume easing cycle, trimming interest rate to 3.75%

The Bank of England will announce its last monetary policy decision of 2025 on Thursday at 12:00 GMT. The market prices a 25-basis-point rate cut, which would leave the BoE’s Bank Rate at 3.75%.

US CPI data expected to show inflation rose slightly to 3.1%, cooling Fed rate cut bets for January

The US Bureau of Labor Statistics will publish the all-important Consumer Price Index (CPI) data for November on Thursday at 13:30 GMT. The CPI inflation in the US is expected to rise at an annual rate of 3.1% in November

Dogecoin Price Forecast: DOGE breaks key support amid declining investor confidence

Dogecoin (DOGE) trades in the red on Thursday, following a 4% decline on the previous day. The DOGE supply in profit declines as large wallet investors trim their portfolios. Derivatives data shows a surge in bearish positions amid declining retail interest.