GBP/USD is poised to rally further if U.S. President Donald Trump rhetoric about
lower U.S. rates and a softer approach to tariffs materialize.
Sterling rose above key resistance at the 30-DMA near 1.2429 in European trading
and faces further obstacles at 1.2455, the 50% Fib of the December-January dip
from 1.2811 to 1.2100. A close above 1.2455 could shift momentum to bulls and
put the 55-DMA at 1.2545 and daily cloud base at 1.2637 in focus.
Potential hazards for GBP/USD include the Fed's rate decision on Jan. 29 and
BoE's on Feb. 6. Rate markets are discounting a hold by the Fed and a 80% chance
of a 25bp BoE cut.
Traders will parse post-decision policymaker comments for clues about the
future.
Though Trump has said he will demand immediate interest rate drops and expects
the Fed to listen, markets are likely to position for the Fed to remain
data-dependent, focusing on U.S. inflation. However, headline risk remains
acute.
GBP Chart:
(Paul Spirgel is a Reuters market analyst. The views expressed are his own)