- GBP/USD built on the previous day’s solid rebound from one-and-half-week lows.
- Expectations for additional measures from the UK budget benefitted the sterling.
- A softer USD provided an additional boost and remained supportive of the uptick.
The GBP/USD pair refreshed weekly tops during the early European session, with bulls now awaiting a sustained move beyond the key 1.4000 psychological mark.
The pair gained traction through the first half of the trading action on Wednesday and has now rallied nearly 150 pips from one-and-half-week lows, around the 1.3860-55 region touched in the previous day. The British pound was supported by expectations that UK finance minister Rishi Sunak will announce measures to safeguard businesses and jobs. Hence, the focus will remain on the UK budget presentation, at around 12:30 GMT.
Apart from this, a softer tone surrounding the US dollar provided an additional boost to the GBP/USD pair and remained supportive of the uptick. However, a combination of factors could help limit any meaningful slide for the USD and keep a lid on any runaway rally for the GBP/USD pair. This, in turn, warrants some caution for aggressive bullish traders and before positioning for any further near-term appreciating move.
Investors remain optimistic about a relatively faster US economic recovery from the pandemic amid the progress in COVID-19 vaccinations and a massive US fiscal spending plan. The reflation trade has been fueling expectations for an uptick in inflation and doubts that the Fed would retain low rates for a longer period. This, along with a fresh leg up in the US Treasury bond yields, should continue to underpin the greenback.
Hence, it remains to be seen if the GBP/USD pair is able to capitalize on the move or meets with some fresh supply at higher levels. Rejection at higher levels will set the stage for an extension of the recent sharp pullback from the vicinity of mid-1.4200s, or near three-year tops set February 24.
Traders on Wednesday will further take cues from the US economic docket, highlighting the release of the ADP report on private-sector employment and ISM Services PMI. Apart from this, the US bond yields might influence the USD price dynamics and further assist traders to grab some short-term opportunities around the GBP/USD pair.
Technical levels to watch
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