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GBP/USD likely to break 1.40 handle despite recent dollar strength

Fawad Razaqzada Fawad Razaqzada 18/02/2021
GBP/USD likely to break 1.40 handle despite recent dollar strength GBP/USD likely to break 1.40 handle despite recent dollar strength
GBP/USD likely to break 1.40 handle despite recent dollar strength Fawad Razaqzada
The pound is once again shining brightly in FX, with the GBP/USD climbing towards this year’s high of 1.3950ish hit a couple of days ago, with the 1.40 handle now just a spitting distance away. It is not just the cable - investors have been piling into the currency across the board. The EUR/GBP for example is hitting fresh-month lows, while the GBP/CHF has climbed above the 1.25 handle for the first time in before the pandemic.

Rallying pound holding back FTSE -- for now

Pound’s strength has held back the FTSE, but this only a temporary obstacle in my view as conditions remain ripe for UK-listed equities to join the global rally, with the Bank of England even entertaining the idea of negative interest rates, a hint that monetary policy will remain loose for years to come. 

Yields, yields, yields…

Like the US, bond yields in the UK have been rising, especially after a no-deal Brexit was avoided at the back end of last year. The UK is currently well ahead of many countries in the race to vaccinate its population. Together, these developments have boosted expectations that the UK economy could potentially recover quicker and stronger once lockdowns end.

US jobless claims eyed

The GBP/USD has largely shrugged off stronger US data, something which has supported the dollar against haven yen and gold. From the US we have had strong retail sales (+5.9% m/m vs. 1.1% expected), industrial production (0.9% m/m vs. +0.4% eyed) and Empire State Manufacturing Index this week. The focus will turn to jobs market, which remains very soft. Unemployment Claims are expected to print 775K later on versus a disappointing 793K reading the week before.

UK data in focus

From the UK, this week’s stronger-than-expect inflation data has further boosted the pound as rising price levels make it less likely that the BoE will go down the route of negative interest rates. On Friday, we will have the latest retail sales data as well as the flash manufacturing and services PMIs. So, we will have more clues about how the economy is coping during the ongoing lockdowns. But the markets are forward-looking and any softness in data during this lockdown will likely be shrugged off.

Cable set to break 1.40 barrier

The key question of course is can the GBP/USD hit the 1.40 handle next? I think it will. I think it is too close not to hit that hurdle now. Yes, the dollar is strong elsewhere, but the pound is equally as strong, if not stronger, than the USD. While some profit-taking is warranted if it gets to 1.40, the longer-term outlook continues to remain positive for the pound due to the above macro factors. Thus, in a few months we could be talking about 1.50s.

GBP/USD
Source: ThinkMarkets and TradingView.com
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Meet our contributors
Mohammed Zidan
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Mohamed Zidan
Chief Market Strategist, Dubai

Mohamed Zidan is a chief market strategist in Dubai and CFA Level III candidate. He reports to London office and has more than eight years of experience focusing on Forex, Commodities, Indices and global economic developments as well as central bank policies and intermarket analysis. worked as FX Analyst, and Strategist in several different organizations and for various departments. He holds a bachelor’s degree from Cairo University in Egypt. Mohamed Zidan is a regular guest on several major TV networks such as; CNBC Arabia, Fran24 Arabic, Alarabiya , Dubai TV, Sama Dubai, Skynews Arabia, Saudi National News, and Egypt National news.

Zidan presents insight to the markets movements, holds open discussions and relays possibilities related to the world’s financial market and economies.

Mohamed Zidan has been invited as a guest speaker for several international seminars. Zidan provides daily and weekly outlook for the markets. His experience ranges from currencies, commodities, stocks and options. he applies a top-down, global macro approach combined with price action to generate trade ideas and anticipate the next move.

Victor Golovtchenko
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Victor Golovtchenko
Global Macro Analyst, Sofia

Victor Golovtchenko has been analysing and trading foreign exchange markets since 2004, and is actively involved in the online media space since 2014. His tenure as a Senior Editor at a major brokerage industry news outlet was followed with a breakthrough into the financial news space with the brand new TradeStar website.

As an affectionate macro-focused analyst, he has an integrated framework to look at financial markets as a whole, identifying gaps between currencies, stocks, bonds, and other asset classes to get a core complete picture of the macroeconomic environment.

Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Mohammed Zidan
Mohamed Zidan
He has more than eight years of experience focusing on Forex, Commodities, Indices and global economic developments as well as central bank policies and intermarket analysis.
Victor Golovtchenko
Victor Golovtchenko
Victor Golovtchenko has been trading on the foreign exchange markets since 2004, and is actively involved in the online media space since 2014. His tenure as a Senior Editor follows his role with TradeStar.
Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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