Sterling rose on Tuesday and divergent central band expectations and positive technical signals support further gains.
For better or worse, the Bank of England appears set to raise interest rates this year to contain inflation nL8N2RF2TEnL1N2RE0KA, while the Federal Reserve is ready to taper bond purchases, but rate hikes remain in the future nL1N2RA1XR, providing underlying GBP/USD support.
Prime Minister Boris Johnson is working hard to attract offshore investment to post-Brexit Britain with his 'green is good' narrative.
Nearly 10 billion pounds of private investment has been pledged nL8N2RF2A3, a positive for sterling.
Implementation of the green transition is key.
Will it be the UK government that presided over the disastrous spread of COVID-19, or the one that successfully rolled out vaccinations nL8N2R73UX?
Positioning is significant in FX and Morgan Stanley's tracker shows both sterling and the U.S. dollar at neutral levels.
Technically the daily GBP/USD setup is constructive; 5, 10 and 21-day moving averages climb and 21-day Bollinger bands expand.
The rising upper Bollinger band suggests further gains, but it is also a good short-term indicator of an overbought market.
This supports a strategy of buying dips, rather than breaks, at current levels.
GBP/USD was capped at 1.3831, 50% of the 2021 fall, on Tuesday.
A break would target the 1.3913 September high, while a close below the 1.3680 rising 10-DMA would undermine the topside bias.
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