GBP/USD Price Eying Breakout of 1.36 amid Soft Yields, Better Risk
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- GBP/USD pares losses, jumps back towards 1.3600 handle.
- UK economy seems to perform well, giving more optimism to the pound.
- After soft yields and better risk sentiment, traders are eying US CPI for fresh stimulus.
Tuesday’s Asian session saw the GBP/USD price bounce off its losses from the previous day, coming back to the multi-week tops.
At the time of writing, the GBP/USD price is at 1.3590, up 0.12%.
The overall outlook for the British pound remains optimistic as the economic indicators are showing strength while Brexit concerns have been quite well managed.
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Manufacturers have emerged from the turmoil of recent years in a relatively strong position, said Stephen Phipson, CEO of Make UK. “As the cloud remains on the horizon, with rapidly rising costs and the inability to access key skills, the outlook is more positive for those who remain flexible, innovative, and adaptable.”
A recent update on Merck’s Covid treatments, along with comments by Fed Chairman Powell, bolstered risk sentiment.
While the economy has grown the fastest in the past couple of years and the labor market is strong, his promise to prevent higher inflation from stabilizing continues to worry and weighs on sentiment. As a matter of fact, Merck’s official statement, “Expect the molnupiravir mechanism to work against any omicron variant or Coronavirus,” is positive in terms of risk sentiment.
In this context, the US 10-year Treasury yield dropped 1.5 basis points (bps) to 1.757% after climbing to January 2020 levels on the previous day and closing in negative territory the following day. Furthermore, the coupons on the 2-year bonds will remain static at the level of March 2020, at the latest at 0.90%. Furthermore, the S&P 500 futures climbed 0.07% intraday while stocks in the Asia-Pacific region traded mixed.
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Consumer price inflation in the United States announced on Wednesday will provide hints on how the markets will react shortly. Inflation is forecast to reach its highest level in decades at 5.4%, strengthening the Fed’s hand. The Fed’s fears will not lead to irreversible deterioration as long as we say goodbye to them, as we have seen several times in previous bulletins; we expect gradual rate hikes, with a focus on reducing the massive balance sheet. We believe it is appropriate to describe the deterioration in the markets as the normalization of extremely high prices or as a sell-off of profits.
GBP/USD price technical analysis: Bulls to break 1.3610
Given the 1.3600 threshold approaching, the upper line from December 31st and the horizontal line containing several levels marked since November highlight the 1.3610 level as a major obstacle.
The price can rise to the November high around 1.3700 if the price rises above 1.3610, which is less likely.
On the other hand, pullbacks can initially target the lower triangle line around 1.3550. Bears remain unconvinced, however, after the 50- period SMA (4-hour chart) level of 1.3530. Additionally, the 200-period SMA level at 1.3355 and the low of last December act as drop filters.
It irritates sellers that GBP/USD cannot stay stronger near multi-day front-runners.
