The GBP/USD is in a tight range after bullish sentiment by Andrew Bailey and as US government bond yields slipped. It is trading at 1.3928, which is a few pips above Friday’s low of 1.3865.
Overall strong US dollar
The GBP/USD is struggling mostly because of the overall strong US dollar. The dollar index gained by more than 0.10% after US bond yields slipped. The 10-year yield declined by 0.20% to 1.63% while the 30-year slipped to 2.39%.
Meanwhile, in the UK, the yield of the 10-year Gilt increased by 4.07% to 0.857% after upbeat comments by Andrew Bailey, the BOE governor. In an interview with the BBC, he said that he was optimistic that the UK economy will have a strong recovery.
He expects the rate of inflation to move above 2% in the next few months. He also expects that the government’s furlough program will help keep the unemployment rate below its projected 7.5%. Recent data showed that the rate was at 5.0%, which is better than that of most peer countries.
The GBP/USD is steady ahead of the upcoming BOE interest rate decision that will come out on Thursday. In it, the bank is expected to leave interest rates unchanged and continue with its asset purchases program whose limit is at 875 billion pounds. Analysts at most forex spread betting brokers will be watching for any change of language by the bank.
Meanwhile, the GBP/USD will react to the Fed interest rate decision that will come out on Wednesday. Like the BOE, analysts expect the central bank will also leave interest rates and its quantitative easing policies unchanged. Before that, the US statistics agency will publish the latest retail sales numbers.
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GBP/USD technical analysis
The four-hour chart reveals that the GBPUSD price rose to a multi-year high of 1.4245 in February. The price then pared-back some of these gains and dropped to 1.3775 this month. The chart also shows that the pair has formed a head and shoulders pattern whose neckline is at 1.3775. The price is also at the same level as the 25-day and 15-day weighted moving averages (WMA).
Therefore, the pair may break-out lower this week. If this happens, the next key level to watch will be the support at 1.3775. However, an increase above the right shoulder at 1.4000 will invalidate this trend.