forexeatrading 
- GBP/USD has rallied by 2.1% from Monday, 3 February swing low.
- The two-year yield premium shrinkage between UK sovereign mounted revenue over the US Treasury Observe might set off a bearish reversal on the GBP/USD.
- Watch the important thing medium-term resistance of 1.2610 on the GBP/USD.
Since its swing low of 1.2249 printed on Monday, 3 February, the GBP/USD has rallied for 3 consecutive classes with a acquire of two.1% and hit an intraday excessive of 1.2550 on Wednesday, 5 February.
UK-US Commerce Deal Optimism and BoE’s Gradual Strategy in Reducing Charges Assist a Latest Firmer GBP
Fig 1: 5-day rolling efficiency of the US greenback in opposition to main currencies as of 6 Feb 2025 (Supply: TradingView)
The latest push-up within the GBP/USD has been attributed to 2 key components. Firstly, on the continued commerce tensions between the US and its main buying and selling companions, US President Trump has remarked {that a} potential commerce deal could possibly be labored out between the US and the UK which has lowered the percentages of US commerce tariffs being imposed on UK items.
Secondly, it’s now broadly anticipated that the Financial institution of England (BoE) will probably enact its third interest minimize of 25 foundation factors since August final yr on Thursday, 6 February to convey the coverage financial institution fee down additional to 4.5%.
Apparently, the market members appear to be pricing in some type of “hawkish minimize” in in the present day’s BoE financial coverage determination as its new financial forecasts for the UK financial system may even see a downgrade on development prospects for 2025 whereas inflation pressures face the danger of an upside revival on account of UK Chancellor Reeves’s latest expansionary finances.
Subsequently, these potential lowered development and better inflation forecasts are more likely to reinforce stagflation fears within the UK financial system, in flip elevating the chance of BoE adopting a “gradual method” stance in the direction of loosening financial coverage within the close to time period.
GBP/USD at Danger of Bearish Reversal Under 1.2610
Fig 2: GBP/USD medium-term pattern as of 6 Feb 2025 (Supply: TradingView)
Quite the opposite from a technical evaluation standpoint, the latest multi-week rebound seen within the GBP/USD from its 13 January swing low of 1.2100 is more likely to be a corrective transfer sequence inside its medium-term downtrend section that continues to be intact.
Intermarket technical evaluation utilizing the yield unfold between the 2-year UK sovereign bond over the 2-year US Treasury Note has flashed a bearish momentum situation which means that there are larger alternative prices of holding onto medium-term UK mounted revenue devices versus US mounted revenue on account of a possible discount in UK yield premium (see Fig 2).
These observations counsel the British pound might proceed to see additional draw back strain in opposition to the US dollar within the medium time period.
Watch the 1.2610 key medium-term pivotal resistance, and a breakdown beneath 1.2310 help suggests a possible continuation of its impulsive down transfer sequence to show the following medium-term helps of 1.2050 and 1.1840 over a medium-term horizon (multi-week).
Nonetheless, a clearance above 1.2610 invalidates the bearish situation for a squeeze up in the direction of the long-term pivotal resistance zone of 1.2810/2910 (additionally the 200-day shifting common & 61.8% Fibonacci retracement of the medium downtrend section from 26 September 2024 excessive to 13 January 2025 low).
