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GBP/USD attempts rebound but faces strong dollar, BoE monetary policy

GBP/USD attempted to rise on Monday from its brand new 5½-year low slightly below the 1.4500 support target, but a strengthening dollar prevented any substantial rebound for the currency pair.

Since the beginning of the year last week, GBP/USD has suffered a sharp drop that has continued its steep plunge since mid-December, when the pair began to fall precipitously from its 50-day moving average.

Indeed, the currency pair has been strongly bearish for the past seven months, producing a clearly-defined pattern of lower lows and lower highs since the 1.5900-area in June of last year.

With a resilient US dollar and a Bank of England (BoE) that is seemingly in no hurry to begin its own interest rate hiking cycle to follow in the US Federal Reserve’s footsteps, GBP/USD appears to have little reason to rise in any appreciable manner. With the Fed having already begun raising rates in December and presumably on track for more hike(s) this year, and the BoE still very uncertain as to its own monetary tightening cycle, further losses could potentially be in store for the currency pair.

The better-than-expected US Non-Farm Payrolls data on Friday has contributed to some dollar-strengthening due to expectations that solid employment should encourage a more hawkish Fed with respect to future potential rate hikes in the US. Thursday brings the BoE’s Monetary Policy Summary, which should provide further clues as to how close (or not) the BoE may be to raising interest rates in the UK.

Having just reached down to hit its 1.4500 downside target before rebounding modestly on Monday, GBP/USD is displaying a clear pattern of trending weakness. On any breakdown below the 1.4500 support level, the next major downside target is at the key 1.4250 support area.



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