GBP/USD spikes to the highest level since May 2018, eyeing mid-1.3700s

The USD selling bias remained unabated on Thursday and pushed the GBP/USD pair to fresh 32-month tops, around the 1.3730-40 region during the early European session.

Following the previous session's intraday pullback of around 100 pips, the pair caught some fresh bids for the third consecutive session and was supported by weaker US dollar. The ongoing strong rally in the equity markets was seen as one of the key factors that continued weighing on the greenback's relative safe-haven status against its British counterpart.

Against the backdrop of the optimism over COVID-19 vaccine rollouts, expectations for a massive US fiscal stimulus lifted hopes for a strong economic recovery. The market bets for more aggressive government spending in 2021 increased further after the US President Joe Biden pitched a plan to pump $1.9 trillion into the struggling US economy on Wednesday.

This, in turn, continued boosting investors' confidence and remained supportive of the prevalent upbeat market mood. The greenback was further undermined by the ongoing decline in the US Treasury bond yields, while the British pound further benefitted from the rapid vaccination campaign and a gradual decrease in COVID-19 cases in the UK.

Meanwhile, the latest leg of a sudden spike over the past hour or so could further be attributed to some short-term trading stops being triggered on a sustained move beyond the 1.3700-1.3710 region. Hence, some follow-through strength towards challenging the top boundary of a four-month-old ascending channel, around the 1.3800 mark, looks a distinct possibility.

In the absence of any major market-moving economic data from the UK, the GBP/USD pair remains at the mercy of the USD price dynamics. Later during the early North American session, the US economic docket – featuring the release of Philly Fed Manufacturing Index, the usual Initial Weekly Jobless Claims and housing market data – will be looked upon for a fresh trading impetus.

Technical levels to watch