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The GBP/USD pair opened the week near the 1.2470s area and, due to favorable market sentiment, rallied 100-pips, reclaiming the 1.2500 mark and closing at the 1.2600 price level, last seen on May 5.
The sterling is extending its recovery after posting its first weekly gain in five and begins the beginning week on the right foot on Monday. At 1.2578, the GBP/USD reflects the upbeat market mood as European and North American investors shrug off concerns of an economic slowdown, as shown by equities edging up amidst a busy week with central bankers taking center stage.
The US Dollar Index remains defensive, so the US dollar is falling 0.82% and sitting at around 102.173, breaking below the strong 103.000 level, a tailwind for the GBP/USD. Contrarily, US Treasury yields grind higher four basis points, sitting at 2.828%, regaining some strength after last week’s 4.69% fall.
An absent UK economic docket left the BoE’s Governor Andrew Bailey as the catalyst for the day and sounded very hawkish aligned to most MPC members. Bailey said that the central bank is ready to hike rates if needed and added that policymakers can and “must” take actions needed to return inflation to target over a period that avoids unnecessary volatility
Bailey also said he rejected the argument that the BoE’s response let demand out of hand, thus stoking inflation. In the US, the economic docket features the Chicago Fed National Activity Index for April, which rose by 0.47, higher than the 0.36 of the previous reading, and further, Fed speaking, with Atlanta’s Fed President, Raphael Bostic, crossing the wires.
Technically; according to the daily chart, the GBP/USD remains under downward pressure, despite recovering some 400-plus pips after reaching a year-to-date low at 1.2155. On Monday, the major attempted a break above 1.2600 but failed. Also, the Relative Strength Index (RSI) at 50.58, its slope is beginning to aim horizontal, signaling that the upward move is fading.
Upwards, the GBP/USD pair’s first resistance could be 1.2600. Break above would expose May 4 daily high at 1.2638, followed by the April 26 daily high at 1.2772. On the other hand, the major first support would be 1.2500. Latter’s breach would send the pair tumbling towards 1.2400, followed by the May 17 daily low at 1.2315 and the YTD low at 1.2155.
