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  • DXY consolidates recovery from multi-year lows, eyes 90.00.
  • GBP/USD is testing levels under the 1.3550, looking vulnerable

The GBP/USD dropped further during the American session and fell to 1.3531, hitting the lowest level since December 30. It is under pressure, trading below the 1.3550 area that leaves the pound vulnerable to more losses.

Key driver: US dollar rebound

The key driver on Thursday is the recovery of the greenback across the board. The DXY is up by 0.35%, trading around 89.90, far from the two-year low it reached on Wednesday near 89.00. Higher US yields continue to support the greenback. In Wall Street, main indexes hit new record highs.

Regarding economic data, initial jobless claims in the US dropped to 787K in the week ended January 2, the lowest in five weeks. The ISM service sector index rose to 57.2 against an expectation of modest decline. Investor ignored the numbers. On Friday, the US official employment report is due.

GBP/USD and the Bank of England

The GBP/USD has a negative bias in the short-term, but the bullish trend is intact on a wider perspective. Last week, it hit the highest level since 2018 and then found resistance at the 1.3700 area.

The rally appears to be losing strength, so far on the back of stronger US dollar. The main challenges in the short-term for the pound are related to monetary policy expectations in the UK and the pandemic. The latest COVID-19 report showed 52K new cases below the 62K informed yesterday.

Analysts at MUFG Bank consider that the pound could continue to underperform during the first quarter of 2021 “as the BoE cuts rates and the UK economy suffers more than elsewhere. Assuming successful roll-outs of vaccines, GBP can then recover from Q2 onwards.”

Technical levels