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GBP/USD takes out key resistance and eyes fresh highs

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  • GBP/USD bulls in control, taking on the higher bound grounds.
  • US dollar on the back foot as investors rule out UK negative rates.

GBP/USD is trading at 1.3678 within a range of 1.3645 and 1.3682 at the time of writing.

The pound is higher by some 0.22% on the day so far after it rallied as far as 1.3718 overnight.

The risk mood improved before the prices faded to 1.3650.

It was the combination of heightened risk appetite in global markets and UK-specific optimism that sent the pound to new highs, the highest since 2018.

The dollar weakened against major currencies for the third straight session in early European trading, helped by US Treasury Secretary nominee Janet Yellen’s urging lawmakers to “act big” on spending and worry about the debt later.

However, the relief among investors that the impact of Brexit has not been as problematic as feard, as well as a lessening of negative rates expectations.

Bank of England’s Bailey said negative rates would complicate banks’ efforts to earn a rate of return, potentially hurting their lending to companies and has essentially ruled out the possibility of them. 

Speaking at an online event held by the Scottish Chambers of Commerce last week, Bailey said subzero rates would hurt banks’ ability to lend to companies as it would complicate the rates of return. 

He also said it was not easy to draw parallels with low-interest rates in the UK and the effect similar moves had on other countries in Europe despite numerous suggestions from BoE policymakers that it was a tool they were prepared to use. 

“In simple economics and maths terms, there is nothing to stop it at all. However, there are a lot of issues with it,” Bailey added.

GBP/USD technical analysis 

Cable has cleared the resistance of the M-formation and there is an emphasis on the upside still. 

The daily wick is merely the retracement on the lower time frames which has tested the old resistance that now acts as support:

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