The GBP had notable strength against the USD to start what looks to be a busy week of data. On Friday, the GBP/USD currency pair rose almost 1%, finishing out last week with a total of 1.5% in gains. This bullish trend didn’t stop there as on Monday, GBP/USD traded consistently above the 1.3150 area and even peaked to two-week highs of around 1.3200. The bullish upside continued even after signals of overbought levels in the pair’s short-term technical picture. Many things are behind this strong performance. The combined influences of broad-based selling pressure around the USD and more encouraging economic indicators from the UK are key factors.
The GBP/USD found its footing around the 1.3170 area as the Greenback was taking a breather. As analysts have pointed out, investors do not appear willing to place a large bet that a massive correction is coming. Market participants are anticipating other key economic data, including the UK employment report covering the three months to February, as well as March CPI data. In the process, the Pound is taking advantage of its strength.
Economic Indicators Bolster GBP Strength
The Pound Sterling’s recent run has been supported by positive economic data from the UK. We got good news on the monthly Gross Domestic Product (GDP) front with positive figures for February. Firmer-than-expected manufacturing data rallied the GBP’s bullish momentum. Month-on-month Industrial and Manufacturing Production increased at a higher rate than expected – boosting investor sentiment toward the UK economy.
Following these encouraging signs, GBP/USD skyrocketed higher, finding itself at levels not seen in 14 days. The market’s reaction to the economic news shows a clear positivity and belief that sustained economic growth is possible in the UK. Analysts warn that this buoyancy may drive further Sterling gains against all of its top peers. As always, investors will be laser-focused on the next set of economic data releases.
As caution lingers on account of overbought conditions according to technical analysis, the broader sentiment continues to be positive. Still, investors appear reluctant to take any big bets in either direction. This reluctance is probably due to the recent weakness of the USD, which has only made the GBP stronger in comparison.
Anticipation of Key Economic Data
Looking forward, players in the market have their eyes set on some key economic indicators that may very well determine which direction GBP/USD heads next. The UK employment report for the three months to February will be out any day now. Our report will provide a first look into what happened in the labor market during that period. Analysts expect this data to reflect continued recovery in employment levels, which could further bolster confidence in the UK economy.
Moreover, the next Consumer Price Index (CPI) report for March will be watched very carefully by investors. The direction of inflation trends will be key for future monetary policy decisions by the BoE. A higher-than-expected CPI reading would add to speculation about more interest rate increases, thus lending further support to the Pound.
With these releases on the horizon, trader sentiment may bias toward defensive positioning, but risks and opportunities await in equal measure. The combined impact of these reports will be crucial in shaping market sentiment and deciding if GBP/USD can continue its bullish momentum.
Technical Outlook and Market Sentiment
Despite its recent uptick, analysts warn that GBP/USD’s immediate technical setup indicates overbought territory. This leads to further concerns about the sustainability of the current upward trend given the corrections that may be on the horizon. Add to that the bullish sentiment apparent in the recent price action, and things look good. Traders could be due for a healthy retest as they reload their bets.
Additionally, with the USD continuing to experience pervasive selling pressure, it’s hard to say how much longer this trend will hold. The Greenback has been under tremendous pressure versus all the major currencies, including the UK’s Pound. Investor sentiment continues to be largely shaped by persistent fears of inflation and macroeconomic weakness.
GBP/USD has grounded out near 1.3170 since its most recent push higher. Market watchers are hungry to follow the next data points for signs that these dynamics may be shifting. Changes to key economic indicators or the tenor of sentiment around the Fed’s forthcoming monetary policy will require traders to change course accordingly.