The GBP/USD rally is gaining steam as forex traders price in a stronger rebound of the UK economy and the upcoming Federal Reserve interest rate decision. It is trading at 1.3913, which is 0.65% above last week’s low of 1.3825.
Stronger UK rebound expected
The GBP/USD is rising as the market prices in a stronger rebound as the UK ramps up its vaccination efforts. The ongoing reopening has also led to robust business activity and the trend is expected to continue.
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Recent data from the UK have been positive. On Friday, the Office of National Statistics (ONS) said that the UK retail sales jumped in March. They rose by 9.9% year-on-year while core sales rose by 4.9% as the country reopened. Another private report by Barclays showed that the card sales rose by 15% in the first week of reopening.
Further, the unemployment rate has dropped to below 5% while data by Markit revealed that the manufacturing and services sector continued to rebound. The composite PMI rose from 56.4 in March to 60 in April. In addition, mobile data mapping by Citymapper shows that movements have returned to pre-pandemic highs.
This week, there will be no major economic data from the UK. Therefore, the focus will be on the United States, where the statistics agency will publish key numbers. For example, on Monday, it will release the core durable goods order numbers.
On Wednesday, the Federal Reserve will conclude its interest rate decision. This will be an important decision considering that some central banks like the BOC have already turned dovish.
Also, recent data how that the US economy is firing on all cylinders. Retail sales, inflation, industrial production, and employment numbers released recently have been strong. Also, US stocks are trading at their highest level on record. Therefore, a hawkish Fed will likely drag the GBP/USD lower and vice versa.
On the hourly chart, we see that the GBP/USD has been in a strong upward trend. This has seen it move from the 50% Fibonacci retracement level at 1.3840 to slightly below the 23.6% retracement level. The pair has also moved above the 25-day and 50-day exponential moving averages (EMA).
Notably, the pair is between the first and second levels of support of the Andrews pitchfork. In technical analysis, this usually a sign that the recovery is not yet complete. Therefore, this recovery will be confirmed if the price manages to move above the first support level at 1.3950.