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  • A combination of factors assisted GBP/USD to gain traction for the second straight session.
  • The USD fell to two-year lows amid concerns about the pace of the US economic recovery.
  • The not so dovish BoE monetary policy update provided an additional boost to the sterling.

The GBP/USD pair maintained its bid tone through the mid-European session and was last seen trading near the 1.3170 region, just below five-month tops set earlier this Thursday.

The pair added to the previous day’s positive move and gained some follow-through traction for the second consecutive session on Thursday. The early uptick was supported by the prevalent bearish sentiment surrounding the US dollar, which dropped to a new two-year low amid doubts about the US economic recovery.

Investors remain worried that the US economy could be stalling again due to the country’s poor performance in containing the coronavirus outbreak. The market concerns were further fueled by Wednesday’s disappointing ADP report, which showed that the private-sector employment in the US increased by only 167K.

The greenback was further pressured by the deadlock in the US Congress over the next round of fiscal stimulus measures. It is worth reporting that Republicans and Democrats harden their stances on the new coronavirus relief plan, raising uncertainty over the possibility of an agreement before the end-of-week deadline.

On the other hand, the British pound found some support after the Bank of England struck a less pessimistic tone on the outlook for the British economy. The UK central bank said the recession will be less severe than feared and predicted that the economic output will shrink by 9.5% this year as against the 14.5% estimated previously.

Meanwhile, the BoE expressed doubts whether negative interest rates would be effective and also refrain from providing any clues about further policy stimulus at this stage. This, in turn, underpinned the sterling and triggered a little more short-covering around the GBP/USD pair, pushing it further beyond the recent swing highs.

However, extremely overbought conditions on short-term charts held investors from placing fresh bullish bets, which seemed to be the only factor that kept a lid on any further gains for the major. Nevertheless, relatively less dovish than expected BoE statement might have already set the stage for a further near-term appreciating move.

Moving ahead, market participants now look forward to the release of the US Initial Weekly Jobless Claims for some short-term trading impetus during the early North American session. The data is unlikely to be a major game-changer as the focus remains on the official non-farm payrolls, popularly known as NFP, scheduled for release on Friday.

Technical levels to watch