The GBP/USD is stuck in an ascending channel making a two and half year high of 1.3699. The weakness in dollar was supporting the uptrend in pound however it got further momentum after Bank of England Governor Andrew Bailey appeared to waver on negative rates. Bailey has expressed concerns over the UK was facing its darkest hour amid surging covid cases and tighter lockdown restrictions. But he said that the end was in sight with the vaccine rollout, playing down suggestions that negative interest rates would be a simple way to boost growth. Globally, despite macroeconomic idiosyncrasies the economic activity is going to remain depressed until a covid vaccine is widely available. Also, in the UK lockdown restrictions could get tougher, PM Johnson has urged people to stick to lockdown rules as coronavirus cases are soaring across the country. The UK economic growth is already doldrums and is expected to tip into a double dip recession on the back of last year’s lockdown and Brexit negotiations. So additional lockdown restrictions would add to the contraction, limiting the uptrend in pound.
The trend in pound also depends on Fed Powell’s speech due tomorrow. Recently, Fed officials have been mixed in their personal approach towards the recovery trajectory and tapering timing. In our view, Powell could reaffirm that interest rates will remain near zero at least through 2023, and that the path of the economy will significantly dependent on the course of the virus. But with Democrats led government, the Fed can put the onus on Biden to support economic recovery, providing a support dollar’s uptrend.
Technically, the GBP/USD is trading within the Rising Channel range. The 1.3710 is a strong resistance zone with Bollinger Band’s upper level. The chart is on the verge of exhibiting a classic bearish divergence, so if it settles above the resistance at 1.3710, it will head towards the next resistance level at 1.3770, which is the Top-to-Top Trend line mark. The RSI is in the moderate territory so there is plenty of room to gain additional momentum in case the right catalysts emerge. On the support side, a move below 1.3500 will push GBP/USD towards the support at 1.3400-1.3310.
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