GBP/USD upsurge continues toward the critical 1.30 handle

• Today’s BoE event fuels the British pound’s rally.
• US Dollar Index slumps below 96.50 following the PMI data.
• GBP/USD adds more than 200 pips on the day.

After dropping to a 10-week low at 1.27 on Wednesday, the GBP/USD pair staged an impressive recovery on Thursday and gained more than 200-pips as positive remarks from the BoE Governor Carney boosted the demand for the British pound in the second half of the day. As of writing, the pair was adding 205 pips, or 1.6%, on the day at 1.2970.

As expected, the Bank of England decided to keep the policy rate unchanged at 0.75% in a unanimous vote today. While delivering his remarks on the monetary policy outlook, Governor Carney hinted at  slightly faster future hikes in interest rates given the UK reaches an orderly Brexit deal with the EU.  “Since the nature of EU withdrawal is not known at present, and its impact on the balance of demand, supply and the exchange rate cannot be determined in advance, the monetary policy response will not be automatic and could be in either direction,” Carney further added.

Commenting on the sterling’s price action today, “If Brexit talks fail the BoE will surely provide a large liquidity cushion to the UK economy, but that scenario is months away Meanwhile each hint at a resolution, as in yesterday’s reported financial agreement, will propel the GBPUSD higher. Sterling risk is on the upside,” argued FXStreet Senior  Analyst Joseph Trevisani.

On the other hand, the US Dollar Index failed to extend its rally on Thursday as the greenback suffered heavy losses against its major rivals. Today’s data published by the IHS Markit and the ISM both showed that the Trump administration’s trade policy continued to impact the manufacturing sector negatively. The DXY, which rose to its highest level in more than a year at 97.20 on Thursday, was last seen down 0.7% on the day at 96.40.

Technical outlook

The pair could face a stiff resistance at 1.3000 (psychological level/100-DMA) ahead of 1.3045 (Oct. 23 high) and 1.3100 (Oct. 19 high). On the downside, supports are located at 1.2870 (Oct. 24 low), 1.2765 (daily low) and 1.2700 (Oct. 20/31 low).