Sterling is reaching new heights
The GBP/USD continues its upward movement from last week’s rise towards the crucial level of 1.2000 on Monday, gaining momentum for the third straight day. The trend continues throughout the early US session, pushing spot prices to a recent high of over one month, in the vicinity of 1.2260.
The safe-haven US dollar (USD) falls to its lowest point since February 14th as a result of an intraday shift in the global risk attitude. This has been triggered by a strong recovery in US equities futures, also benefiting the GBP/USD.
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As for fresh data, the Bank of England will have a policy meeting of on Thursday. Traders will also have to deal with the UK’s Wednesday publication of the most recent consumer inflation data this week. The critical macroeconomic data and the much anticipated central bank events (Fed and BoE) will both play a role in determining the GBP/USD pair’s short-term trend.
The US dollar may not be able to hold it’s power for much longer
The likelihood that the Federal Reserve (Fed) would tighten monetary policy more aggressively is dwindling, particularly in light of the recent failures of two mid-sized American banks, Silicon Valley Bank and Signature Bank. As a matter of fact, traders are now factoring in a modest 25 bps hike at the conclusion of the two-day FOMC policy meeting, which begins on Tuesday.
The broad dollar has been bouncing back and forth between rates and risk appetite. Long-held views that the general dollar depreciation would continue once the conditions were more favorable. Shortly after the opening of US trade on Monday, the US dollar index is down 0.42%.
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The backdrop for a more favorable scenario where the US dollar declines might be created after the March Fed meeting is behind us and there are further indications of a stronger global growth inflation mix.
The bulls have the upper hand at the moment
GBP/USD appears to be in a clear bullish trend on the 3H chart. The 200 day average has been shot through, as well as multiple bearish corrections have been neutralised by the bulls.
The sterling also shot through the 1.2200 psychological level, currently enjoying new highs. The correction could see a support of the 1.2200 level with the bulls cashing out.
In case the bears prevail, there shouldn’t be much pressure below the 1.2150 area. The bulls could pick up the pace if all goes well for the sterling and push the prices higher to the end of January 2023 levels of 1.2350.
GBP/USD 3H chart, source: tradingview.com, author’s analysis
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