GBP/USD: Current run is significant but may end abruptly

GBP/USD has been rising amid an upbeat market mood and falling US yields but US spending and overbought conditions may (temporarily) stop sterling, Yohay Elam, an Analyst at FXStreet, briefs.

A refocus on US infrastructure plans may boost the dollar

“The main factor boosting cable comes from dollar weakness, which is suffering a double-whammy of falling US Treasury yields and a risk-on mood in markets. However, this trend may reverse. The world is cheering America’s emergence from the coronavirus crisis, with robust US consumption seen as a catalyst for global growth.”

“Change may come from developments on President Joe Biden’s infrastructure spending plans. If his $2.25 trillion expenditure drive gets a boost, it could cause a sell-off in bonds, thus pushing yields up and carrying the greenback higher for a ride. Moreover, the president wants to enact corporate tax hikes, something that Wall Street dislikes. If the current market rally comes to a halt, the safe-haven dollar may see fresh demand.”  

“Pound/dollar is benefiting from upside momentum on the 4-hour chart and has surpassed the 200 Simple Moving Average on its way up. However, the Relative Strength Index (RSI) is tackling the 70 level – thus entering overbought conditions.”

“The crucial battle line is 1.3920, which was a peak in early April. It is followed by 1.3940 and by the psychological barrier of 1.40.”

“Support awaits at 1.3850, which held the pair back before its recent rally, and then by 1.3810 and 1.3780.”