GBP/USD extends rally toward 1.2300

• Pound gains momentum during the American session hits fresh highs versus USD and EUR.
• GBP/USD heads for highest daily close in a week.

The GBP/USD pair broke higher late during the American session and printed a fresh six-day high at 1.2296. It then pulled back modestly and near the end of the session was hovering around 1.2265/70, almost two hundred pips above Monday’s bottom.

A weaker US dollar has been the key driver in the GBP/USD recovery. On Tuesday the pound gained versus the greenback but not as much as other currencies.  According to analysts at MUFG Bank the relatively disappointing performance of the pound was driven again by further speculation over the prospect of negative rates in the United Kingdom. “We are still not convinced though that negative rates will be implemented in UK when there is room for other policy options such as extending QE. The heightened uncertainty is set to remain a weight on the pound.”

The improvement in risk sentiment and also better-than-expected UK employment data for March helped the pound. On Wednesday inflation data is due in the UK while in the US the key event will the FOMC minutes from the latest meeting. Fed’s Powell testimony at a Senate Committee had no impact.

Short-term levels

From a technical perspective, the positive momentum remains in place. The next resistance is seen around the 1.2300 zone followed by 1.2340 and 1.2350 (20-day moving average). On the flip side, support might be located at 1.2255, 1.2215/20 (US session low) and 1.2180 (May 19 low).