One-Month Best for Pound Against US Dollar and Exchange Rate Can Edge Higher from Here
The Pound to Dollar exchange rate trades around the key support at 1.25 ahead of the weekend.
GBP/USD reached a high at 1.2583 earlier on Thursday February 9 which represents a fresh one-month high.
The gains came thanks largely to the swift passage of the Article 50 bill through the House of Commons.
Theresa May and her Government managed to ensure the concise wording of the bill remains intact and there were not additions or amendments.
The victory for May is taken as a positive simply in that some certainty has been put on the table regarding the Brexit story, even if the hard slog at the negotiation tables has not yet happened.
“This represents a significant win for PM May and bolsters her government’s authority in the process. The bill passes on to the Lords now but the government’s strong majority in the lower house suggests that there will be little or no delay in the government’s end-March timeline for triggering Article 50, removing one, short-term uncertainty from the GBP outlook,” says Shaun Osborne at Scotiabank.
Moves on the Brexit front combined with recent comments from the Bank of England’s Forbes that an interest rate rise in the UK might soon be necessary ensures the UK currency enjoys some rare strength.
“A buoyant UK Pound notched one-week highs against the Dollar, supported by calls from a British central bank official to take back last summer’s rate cut if the economy remains on a resilient footing and inflation continues to climb,” says Joe Manimbo, Senior Market Analyst at Western Union.
The Pound has also benefited from the fall in US government bond yields which are necessary to keep the Dollar rising.
The decline in US yields come despite some solid US employment data that showed weekly claims by the newly unemployed continue to fall.
GBP/USD: Outlook for Coming Days
The outlook for GBP/USD for coming days suggests the pair could edge higher.
“Cable traded positively in response to the 100-day MA test earlier in the week (bullish outside range session Tuesday) but shorter-term signals have are less supportive this morning, with the GBP rally stalling in the upper 1.25s,” says Scotiabank's Osborne.
Neutral trend strength oscillators suggest the GBP may struggle to extend significantly.
“Broader signals suggest that 1.2675 may be reachable in the next few days if the Pound can hold support in the low 1.25s, however,” says Osborne.
Our own studies suggest there is a slightly higher probability of a breakout above the range highs than below the range lows.
On the weekly chart, we note both Momentum and MACD indicators are rising even though the exchange rate is only going sideways, indicating evidence of underlying strength, and that the bulls have the upper hand.
The week of the recovery following the lows in October (circled in red) looks like it may have marked a major long-term low, suggesting more upside on the horizon.
A break above the range highs and the R1 monthly pivot at 1.2837 would signal a high probability of an extension to an initial target at 1.3000.
Such a move, however, would require confirmation from a break above the 1.2900 level as there is a risk that below there the rate could pull back into the range again.
