Pound flirts with 1.40 but retreats

The British pound is slightly lower on Tuesday, after posting sharp gains a day earlier. Currently, GDP/USD is trading at 1.3963, down 0.16% on the day.

Pound punches past 1.40 level

The pound was red-hot at the start of the week, posting gains of 1.1% on Monday. This marked the pound’s best one-day performance since January 12th. Earlier in the day, GBP crossed above the 1.40 line, which has psychological significance, for the first time since March 18th. The pound is on a strong upswing and appears poised to push into 1.40-territory shortly.

The US dollar had a dismal start to the week, and the pound took full advantage of weaker sentiment towards the greenback. The currency market appears to be internalizing the message from the Fed that any increase in inflation will be only temporary. This has led to a significant reduction in expectations of a rate hike in the near future, as there was speculation that the Fed might tighten policy in order to curb inflation and prevent the economy from overheating.

UK unemployment data was a mixed bag. The unemployment rate fell to 4.9%, down from 5.0%. Claimant Count dropped to 10.1 thousand, down sharply from 86.6 thousand and below the forecast of 24.6 thousand. However, wage growth underperformed, falling from 4.8% to 4.5% and missing the estimate of 4.7%.

Market attention will now shift to the inflation front, with the release of CPI reports on Wednesday (6:00 GMT). The extended lockdown in the UK has led to significant pent-up demand, which is expected to result in higher inflation. The estimate for headline inflation in March stands at 0.8%, compared to the current level of 0.4%. Core CPI is also projected to accelerate, from 0.9% to 1.1%.

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GBP/USD Technical Analysis

• GBP/USD is testing resistance at 1.3956. Above, there is resistance at 1.4070
• On the downside, there is support at 1.3726

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