GBP/USD Consolidates Ahead of 1.2900 Handle

The pound to dollar exchange rate rallied to highs not seen since March as the US dollar continues to be strongly offered. The US dollar index (DXY) was last seen trading at a two-year low.

Senate Republicans proposed a new stimulus package on Monday that could result in another $1200 check for US citizens. The proposed package is expected to be worth around $1 trillion and includes a cut in emergency unemployment benefits from $600 to $200 per week.

While Sterling has had a strong correlation with the equity markets, it has been able to rise over the past few sessions even though the upward momentum in the global stock market has eased. The S&P 500 declined about 1.75% late last week to give up its weekly gains before bouncing three-quarters of a percent higher on Monday.

The Federal Reserve will start its two-day meeting today and is scheduled to announce its latest decision and hold a press conference tomorrow. It remains to be seen whether policymakers will react to the rise in Coronavirus cases in the US during July.

Later in the North American session today, the US will release its latest consumer confidence figures.

Technical Analysis

GBP/USD has shown strong upward momentum as of late and is outperforming most of its major counterparts in the early week.

For this reason, buyers may be quick to step in on dips. Major support for the exchange rate is seen at 1.2750 as this level acted as both support and resistance in the past. However, buyers may look to step in sooner near the 1.2800 area if the pair were to dip, considering the upward momentum.

The next potential upside target falls at 1.2960. This level acted as major resistance in the fourth quarter of 2018.

The US dollar index (DXY) is seen attempting to bounce after hitting a fresh two-year low. There may be a slowing of volatility ahead of the Fed meeting which could lead to a range.

Bottom Line

• GBP/USD trades near fresh 4-month highs.
• The Federal Reserve meets tomorrow and there may be a slowing of volatility ahead of the meeting.
• The US is considering a new stimulus package worth nearly $1 trillion.

For a look at all of today’s economic events, check out our economic calendar.