GBP/USD Reverses Higher As Dollar Declines on Market Optimism

GBP/USD initially declined in the early week but has rebounded to wipe out most of the earlier decline. The pair is boosted by a weaker dollar as the trade-weighted index (DXY) has fallen to lows not seen since early June.

The dollar, which has been trading as a safe-haven currency as of late, fell under pressure as equity markets around the world are seen advancing on progress in the development of a vaccine for the Coronavirus.

This has helped GBP/USD recover after the pair dipped to a one-week low yesterday following a disappointing GDP report. Yesterday’s UK GDP reported reflected a rise of 1.8% in growth during May while analysts had been looking for 5.5%.

Bank of England’s Tenreyro offered some optimism earlier today as she commented that the easing of lockdown restrictions has already caused a sharp recovery in purchases.

Tenreyro also said that downward price pressure is likely to remain for some time considering the decline in energy prices and the recent cut in VAT.

The UK consumer price index was reported earlier today to rise by 0.8% in the twelve months to June, up from 0.7% in the prior reading. On a month over month basis, CPI rose 0.1% in June after remaining unchanged in May.

Technical Analysis

The technical outlook for GBP/USD is bullish on a daily chart as the pair posted a reversal candle yesterday and is seen extending on the gains today.

However, the exchange rate is once again nearing a major resistance level at 1.2650. This same level held it lower in April, and then again over the last week.

For the session ahead, sellers may look to defend the level although the upward momentum since yesterday hints of an eventual bullish break.

To the downside, support for the session ahead is seen at 1.2560.

Bottom Line

• GBP/USD is once again showing signs of bullishness as the dollar has declined broadly against its major counterparts in early trading on Wednesday.
• Risk sentiment will continue to be a big driver for the greenback and further strength in the equity markets during the North American session could trigger more downside for the greenback.

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