GBP/USD: Bulls target a break above 1.3750 and 50-day EMA

  • GBP/USD rallies on the day with a softer dollar, improved risk appetite. 
  • BoE surprises with a hawkish tilt supporting GBP/USD. 

At the time of writing, GBP/USD is 0.91% higher on the day, trading near 1.3740 after rising from a low of 1.3612 and reaching a high of 1.3750 so far. The pound rallied over the Bank of England event whereby two of its policymakers had voted for an early end to pandemic-era government bond-buying.

The BoE left its main interest rate unchanged at 0.1% and stuck to its 895 billion pounds ($1.22 trillion) asset purchase target. The surprise, however, came with the policymaker Dave Ramsden voting for an early end to the QE even though policymakers voted unanimously to leave interest rates unchanged. Ramsden now joins hawk Michael Saunders.

Consequently, money markets have brought forward their BoE rate hike expectations with an initial 15 bps hike from the record low of 0.1% now priced in for March 2022, from May previously. This has sent Britain’s two-year bond yield higher by 9 basis points to 0.37% its highest since March 2020.

Evergrande risk abates

Meanwhile, risk appetite is higher towards the end of the week on easing concerns about the Evergrande debt crisis supporting currencies other than the US dollar. The better mood started when Beijing injected fresh cash into its financial system ahead of an $83.5 million bond coupon by embattled property giant Evergrande, helping to ease concerns over systemic risks to China’s financial system and the potential for contagion through the matrix of global financial markets.

Subsequently, the US dollar fell across the board, eroding the gains it notched On Wednesday following the US Federal Reserve interest rate decision whereby the central bank flagged plans to reel in stimulus this year. The better risk mood has also sunk bond prices on Thursday, sending US yields higher which has, to some extent, started to support the greenback with the DXY index basing near 93.00.

GBP/USD technical analysis

The price is correcting from familiar daily support and headed towards the 21-day moving average. A push higher will meet the confluence of prior support, the 50-day EMA as well as the trendline resistance near 1.3800. Failures there would be expected to equate to downside continuation for the days ahead with 1.3400 eyed:

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