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29 Jul 2021

GBP/USD sticks to strong gains near 1.3970-75, multi-week tops on dismal US GDP

  • GBP/USD gained strong follow-through traction for the fourth consecutive session on Thursday.
  • The post-FOMC USD selloff remained unabated and remained supportive of the strong move up.
  • Softer US economic releases failed to provide any respite to the USD or hinder the momentum.

The GBP/USD pair maintained its strong bid tone through the early North American session and refreshed multi-week tops, around the 1.3970-75 region in reaction to weaker US macro releases.

The pair built on its recent strong rebound from the 1.3570 area, or the lowest level since February and scaled higher for the fourth consecutive session on Thursday. This also marked the sixth day of a positive move in the previous seven and was sponsored by a combination of factors.

In the absence of any negative Brexit-related headlines, the British pound remained well supported by the declining trend in Delta variant infections in the UK. Adding to this, the UK’s most prominent epidemiologist, Neil Ferguson, said that the end of the pandemic could be just months away.

On the other hand, the US dollar continues to be weighed down by the Fed Chair Jerome Powell's dovish tone at the post-meeting press conference on Wednesday. Powell emphasised that they were some ways away from substantial progress on jobs and was also cautious about tapering.

Apart from this, a generally positive mood around the equity markets further undermined the safe-haven greenback. Thursday's disappointing second-quarter US GDP print and higher than expected Initial Weekly Jobless Claims data also did little to lend any support to the USD.

The first estimate showed that the world's largest economy expanded by 6.5% annualized pace during the April-June period. The reading marked a modest uptick from 6.4% in the previous quarter but missed consensus estimates by a big margin and further weighed on the already weaker buck.

The data reaffirmed market expectations that the Fed will stick to its ultra-lose monetary policy stance for a longer period. This, in turn, should continue to act as a headwind for the greenback and pave the way for an extension of the GBP/USD pair's ongoing positive momentum.

Technical levels to watch

 

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