GBP/USD bulls eyeing 1.4000 handle after 5-day losing streak

• The GBP/USD bulls are staging a pullback establishing a base close to the 1.3900 handle.

• The US dollar might be set for a pullback as the yields are stalling below 3.00% on the 10-year benchmark. 

The GBP/USD is trading at around 1.3962 up 0.13% on Tuesday’s trading. 

The cable rebounded very close to the 1.3900 handle after losing more than 450 pips in the last 5 sessions. The recent weakness in the pair is attributed to a combination of US dollar strength, dovish comments from Bank of England (BoE) officials and lower-than-expected macroeconomic data in the UK last week. 

The US Dollar Index, which gauges the greenback against a basket of currencies, is consolidating on Tuesday after a five-day advance to 91.08 high on the index. The move up behind the buck is lead by rising US treasury yields and in particular the 10-year note yields which came very close to the 3.00% mark on Monday and are now hovering in the 2.983% region. 

In absence of tier-one macroeconomic data, the cable direction is going to be dictated by the sentiment on the US dollar. As the 10-year bond yields are consolidating below the 3.00% mark, market participants are considering that a pullback in the US dollar might be in the making.

On the broader picture, May 10 will be the crucial day for Sterling. The Bank of England (BoE) will give its interest rate decision on that date. Mr. Saunders and McCafferty voted in favor of rate hike on March 22 and three more members of the Monetary Policy Committee will need to give their vote in order to raise the overnight rate target to 0.75% on May 10 next month. Gertjan Vlieghe is potentially a good candidate for a hawkish vote as he said that interest rates will need to increase once or twice over the coming years. Andy Haldane, chief economist at the Bank of England, said in February that rate hikes could come “faster than expected”. On the other hand, Jon Cunliffe, Deputy Governor for Financial Stability and Dave Ramsden, Deputy Governor for Markets and Banking voted against a rate hike in last November. However, Dave Ramsden is seen as data dependent as he said in February that he was looking for wage growth in the British economy. “We all will keep a close eye on what happens through the early part of this year to see if that (BoE) forecast of wage growth picking up to 3 percent is realized. But certainly, relative to where I was, I see the case for rates rising somewhat sooner rather than somewhat later,” said Ramsden in February. But with the Average Earnings including Bonus for February at 2.80% versus the 3.00% expected by analyst and Ramsden, it will be interesting what will be his stance on the 10 May rate decision. 

Earlier, the US Housing Price Index for February came in above expectations at 0.6% versus 0.5% expected by analysts. Coming up next is the US New Home Sales and the Richmond Fed Manufacturing data at 14:00 GMT.

GBP/USD 4-hour chart

Resistance is seen at 1.4000 and 1.4100 handle while support is priced in at 1.3918-1.3900 (low of the day) and at 1.3711 swing low.