GBP/USD: Current run is significant but may end abruptly

GBP/USD has been rising amid an upbeat market mood and falling US yields but US spending and overbought conditions may (temporarily) stop sterling, Yohay Elam, an Analyst at FXStreet, briefs.

A refocus on US infrastructure plans may boost the dollar

“The main factor boosting cable comes from dollar weakness, which is suffering a double-whammy of falling US Treasury yields and a risk-on mood in markets. However, this trend may reverse. The world is cheering America's emergence from the coronavirus crisis, with robust US consumption seen as a catalyst for global growth.”

“Change may come from developments on President Joe Biden's infrastructure spending plans. If his $2.25 trillion expenditure drive gets a boost, it could cause a sell-off in bonds, thus pushing yields up and carrying the greenback higher for a ride. Moreover, the president wants to enact corporate tax hikes, something that Wall Street dislikes. If the current market rally comes to a halt, the safe-haven dollar may see fresh demand.” 

“Pound/dollar is benefiting from upside momentum on the 4-hour chart and has surpassed the 200 Simple Moving Average on its way up. However, the Relative Strength Index (RSI) is tackling the 70 level – thus entering overbought conditions.”

“The crucial battle line is 1.3920, which was a peak in early April. It is followed by 1.3940 and by the psychological barrier of 1.40.”

“Support awaits at 1.3850, which held the pair back before its recent rally, and then by 1.3810 and 1.3780.”