Guess who has become the best performing G10 currency year-to-date?
Like a rampant bull, the pound trampled its counterparts last week and even climbed above $1.40 for the first time in almost three years. With investors becoming increasingly optimistic over the UK’s rapid coronavirus vaccine rollouts and economic prospects, the outlook for Sterling remains bright.
It's just remarkable that a year ago the currency plunged to its lowest level in over three decades as the coronavirus menace crippled the UK economy. Since then, the pound has derived strength from a massive reduction in Brexit-related uncertainty, the quick rollout of vaccines, and an optimistic Bank of England.
As confidence continues to rise over the UK experiencing a quick economic recovery, this is likely to prompt investors to scale back expectations for the BoE to cut interest rates below 0% - something that may support the pound further. If things continue to run smoothly on the vaccine front, economic data improves and lockdowns are eased, sterling could rally towards pre-Brexit referendum levels beyond 1.5000 in the longer term.
Spotlight shines on Boris
Speaking of lockdowns, U.K Prime Minister Boris Johnson will give a statement to the House of Commons this afternoon on reopening measures. So far so good, we know that all schools will open from 8 March and outdoor gatherings of either six people or two households will be allowed from 29 March. Also, people will once again be able to travel out of their areas from the end of March. His speech will be thoroughly scrutinized by investors for more clarity on the roadmap to unwinding lockdowns as coronavirus cases drop.
In regards to the week ahead, keep your eyes peeled for the UK jobs data scheduled for release on Tuesday 23rd February. Should this report exceed market expectations, the mighty pound could extend gains against the Dollar and other G10 currencies.
Time to break down the technicals
One word comes to mind when looking at the GBPUSD on the weekly timeframe. BULLISH.
There have been consistently higher highs and higher lows while the MACD trades to the upside. Although prices are trading well above the 100 and 200 Simple Moving Average, the Relative Strength Index (RSI) has entered overbought territory above 70.00.
Another weekly close above 1.4000 may encourage an incline higher towards 1.4200 and the high of 2018 beyond 1.4350. These levels may seem lofty but fundamentals remain in favour of Pound bulls while a weaker Dollar could provide critical support down the line.
Zooming into the daily
It’s the same story on the daily charts. Bulls remain the driving seat with prices above 1.4000 as of writing. A solid daily close above this level could trigger an incline towards 1.4050 and 1.4200. If 1.4200 proves to be unreliable support, the GBPUSD may sink back towards 1.3818 before rebounding back towards 1.4000. A breakdown below 1.3830 may open the doors towards 1.3750.
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