The pound sterling soared to a high of 1.4243 against the U.S. dollar despite heavily overbought conditions. The pound’s uptrend has been bolstered by Prime Minister Boris Johnson’s lockdown easing roadmap that is expected to put the U.K. economy on course for a strong rebound. Economists expect the reopening roadmap will allow the economy to climb back to its February 2020 level late this year. A fast economic recovery and loose monetary policy could even lead to a rise to 1.45 in the GBP/USD. However, while this upside forecast target could be achievable in the near-term, we remember that conditions are heavily overbought, increasing the likelihood for a pullback.
Technically, traders should watch out for a sustained break above 1.4250/60 now. A next higher target could be at 1.4345 – the January 2018 high. On the downside, the 1.40-level could now serve as a support.
The dollar fell against its major peers Tuesday after Fed Chair Jerome Powell signaled the central bank was nowhere close unwinding its easy policy. The dovish comments bolstered the current market sentiment and support risk assets. As Powell reassured investors on stimulus, he voiced cautious expectations for a return to more normal activity later this year and said that higher bond yields reflected economic optimism, not inflation fears.
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