- GBP/USD has recovered above 1.2400 after having close in the red on Monday.
- Pound Sterling faces key near-term resistance at 1.2450.
- Markets will pay close attention to Fedspeak and risk perception.
Following Monday’s decline, GBP/USD has regained its traction and climbed above 1.2400 early Tuesday. The improving market mood helps Pound Sterling keep its footing as investors await comments from Federal Reserve (Fed) policymakers.
In the absence of high-tier data releases on Monday, the US Dollar (USD) capitalized on rising US T-bond yields as investors continued to price in a 25 basis points (bps) Fed rate hike in May following the March jobs report.
Early Tuesday, the 10-year US Treasury bond yield stays in negative territory below 3.4%, making it difficult for the USD to build on Monday’s gains. Additionally, the FTSE 100 Index is up 0.5%, pointing to a positive shift in risk sentiment. Meanwhile, US stock index futures are up around 0.2% in the European session. If US stocks gather bullish momentum after the opening bell, the USD is likely to continue to weaken and open the door for an extended rebound in GBP/USD.
In the American session, market participants will pay close attention to comments from Philadelphia Fed President Patrick Harker, Chicago Fed President Austan Goolsbee and Minneapolis Fed President Neel Kashkari.
Kashkari and Harker are both hawkish policymakers and in case they hint at one more rate hike at the upcoming meeting, the USD could find its footing and limit GBP/USD’s upside. Nevertheless, investors could step aside ahead of Wednesday’s key inflation data from the US and not allow GBP/USD to find direction. It’s worth mentioning that the CME Group FedWatch Tools probability for a 25 bps Fed rate increase in May sits around 70%.
GBP/USD Technical Analysis
GBP/USD closed the last four four-hour candles in positive territory and climbed above 1.2420, where the 20-period and the 50-period Simple Moving Averages align. The next resistance for the pair is located at 1.2450, the lower limit of the ascending regression channel coming from early March. Once GBP/USD stabilizes above that level, 1.2470 (static level) aligns as interim hurdle before 1.2500 (psychological level, static level) and 1.2525/1.2530 (April 4 high, mid-point of the ascending channel).
If GBP/USD falls below 1.2420 and starts using that level as resistance, additional losses toward 1.2400 (psychological level, static level) and 1.2350 (Fibonacci 23.6% retracement of the latest uptrend, 100-period SMA).