Pound/dollar is back to the highest levels in this cycle and to the highest levels since 2008. Strong UK inflation sent the pair higher with strong momentum, but the mixed US numbers were not enough to keep the momentum, and the pair took one step back.
Where will it go now? It all depends on Fed Chair Janet Yellen.
Since it made the big break at the end of June, cable tackled the 1.7180 line three times: the first two moves happened in the first week of the month. We then had a move higher that stalled at 1.7167 in what seemed like a higher low.
But now we have the third attempt that makes eliminates the higher low and sets the stage for a showdown: will it bounce or break?
Fed Chair Yellen is about to face politicians in Washington. Given the recent improvement in the US economy, best reflected in the blockbuster Non-Farm Payrolls, many (including a well known Fed watcher) are expecting the Fed to initiate the process of preparing the public and the markets for a potential interest rate rise. At the least, there are expectations for an acknowledgement of this improvement.
Given the past of Yellen, as well as her predecessor, she could certainly disappoint with yet another cautious and dovish stance. If she falls short of expectations, the dollar bulls could throw the towel and GBP/USD could reach new multi-year highs above 1.72.
If she does meet expectations, we can expect cable to slide back down, but the reaction could be stronger for the dollar against other currencies.
For more, see the GBP/USD forecast.
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