- GBP / USD tide reverses after 6 month pullback
- With an end of year rally causing a new test of 1.35
- Brings 1.3572 and 1.3625 in sight on the horizon
- After GBP Rises by BoE Rate Bets and USD Lockdowns
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The pound rate against the dollar hit one-month highs at 1.35 in the final week of 2021, a sign that it is attempting to draw a line below a corrective six-month decline, although the outlook largely depends on the market’s appetite for the greenback once into the new year.
The pound had reversed nearly half of its loss in the last quarter when the pound-to-dollar rate was briefly listed at 1.35 in the penultimate trading session of 2021 on Thursday, although it remained well Below September’s 1.39 opening level and even further from June 2021 high near 1.4250.
The pound-dollar rate rose sharply from year-to-date lows in mid-December to 1.3162 over the Christmas holidays, overcoming a treble of technical resistance barriers on current charts of road before retesting the 1.35 grip on Wednesday and Thursday. .
“News of the massive US trade deficit hit the US dollar on Wednesday, although we are already seeing the Buck quickly find renewed demand in the trough. The reason? Well… we think a lot of it has to do with the Fed’s rate hike, ”says Joel Kruger, chief currency strategist at LMAX Exchange Group.
“A return above 1.3514 would remove the downward pressure,” Kruger said Thursday, referring to the pound-to-dollar rate.
Above: Pound-dollar rate displayed at daily intervals with Fibonacci retracements from the September correction and major moving averages indicating likely areas of technical resistance to the rally in the pound.
- GBP / USD reference rate at publication:
- High bank rates (indicative band): 1.3085-1.3180
- Payment specialists (indicative band): 1.33362-1.3389
- Discover the specialized rates, here
- Set up an exchange rate alert, here
A weaker greenback may have contributed to the gains in the pound-dollar rate on Wednesday, but the pound has rallied on its own for much of the fortnight since the Bank of England (BoE) surprised the market on December 16 by raising the discount rate from 0.1% to 0.25%.
“Instead, traders can focus on the fact that the Bank of England has decided to raise rates amid rising Omicron cases, with a good chance the UK will end up with better immunity. collective and improved economic outlook by the February BoE meeting, “Joshua Mahony, senior market analyst at e-commerce company IG, said in a market commentary Wednesday.
December’s pound-dollar rally was given new life ahead of the festive break when studies from England, Scotland and South Africa suggested the risk of hospitalization could be between 15% and 80% lower with the strain of coronavirus omicron than with the delta a variant.
“A firmer breakout of the 50-day MA at 1.3429 (also on a close basis) would signal renewed upward momentum towards a test of 1.36, the 100-day MA (today at 1.3572) acting as the next key resistance marker. following the figure of 1.35, ”said Juan Manuel Herrrera, strategist at Scotiabank, referring to the pound-dollar rate in a market commentary on Wednesday.
Coronavirus studies and the BoE’s December rate hike have seen financial markets revise their discount rate expectations next year, with overnight index swap prices implying a high likelihood that the The benchmark will reach 1.25% by the end of 2022.
However, much of the performance of the sterling rate in the new year will be determined by the market appetite for the U.S. dollar, which became the top-performing major currency in the G10 contingent for 2021 after the Federal Reserve (Fed) hinted in June that it could start slowing its quantitative easing program before the end of the year and ultimately seek to raise U.S. interest rates much sooner than expected. thought before.
“The year 2022 looks likely to offer more volatility than 2021, as the market adjusts to Fed tightening and the Fed may adjust to a market unable to make that adjustment gracefully,” he said. said John Hardy, head of currency strategy at Saxo Bank, which is a pound-to-dollar seller.
“If the more hawkish Fed ends up triggering a crisis in the financial markets, the US dollar will tend to outperform the British pound as a safe haven. Trade is limited in the first quarter because for the remainder of 2022 we expect the US dollar to decline, ”Hardy said Thursday.
Above: Pound-dollar rate displayed at weekly intervals with Fibonacci retracements of the 2020 rally indicating likely areas of technical support for the British pound, displayed alongside the US dollar index.