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GBP/USD Recovery Rally Hindered By BoE Easing Expectations

Jignesh Davda

Optimism is driving stocks higher and the dollar lower although Sterling is one of the few major currencies that has struggled to gain.

The pair is the weakest performer among the most popular major currencies in the month thus far, currently down 2% against the greenback.

Prospects of more monetary policy easing in the UK have weighed on the pair after several members of the Bank of England discussed the idea of unconventional easing measures last week.

Amidst the Coronavirus chaos, uncertainty over Brexit negotiations is also weighing on the pair.

GBP/USD briefly traded at a two-week high on Tuesday near 1.2360 but has declined nearly 1% since then. The pair is seen approaching notable support ahead of economic data that stands to move the markets.

The US is scheduled to release GDP figures from the first quarter later in the day which analysts expect will show a 4.8% contraction. Weekly unemployment figures will be released as well, the forecast is for another 2.1 million jobs lost.

Technical Analysis

GBPUSD 4-Hour Chart

The US dollar index (DXY) is sitting on major support and where the index goes from here stands to have a major impact on the pound to dollar exchange rate.

DXY is trading at support from the 99.00 level, a price point that held it higher in the middle of April and in early May.

GBP/USD rallied above 1.2266 earlier in the week which is considered to be a major level for the pair as it has acted as both resistance and support in the past few months. Buyers failed to protect the level on a pullback yesterday which signals weakness.

However, further support is seen from the lower bound of a rising trend channel. If buyers can defend it, GBP/USD may still make another run toward resistance at 1.2369.

Bottom Line

  • GBP/USD has come under pressure after trading at a two-week high earlier in the week.
  • The US dollar index is at a key inflection point, the reaction from here stands to set the tone for GBP/USD.
  • US GDP figures and weekly unemployment data will be released shortly after the North American open.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire