The daily time frame of GBP/USD shows an uptrend that is still very much intact, as the pair came off a test of the bottom of the rising channel and resumed its climb. The 1.6550 to 1.6600 area of interest has held as support and a complex double bottom has formed on the test of the channel.
The pair has indicated enough momentum, despite the recent round of bleak PMI (purchasing managers index) readings. Recall that the UK economy has shown weaker than expected manufacturing, construction, and services PMI, leading many market participants to believe that the economy will see a lower than estimated GDP (gross domestic product) figure for the first quarter of the year.
The latest manufacturing production data has been much more promising though, as it indicated a 1.0% gain instead of the estimated 0.3% uptick. This spells positive prospects for the second quarter of the year, indicating that the economy might be in for stronger growth figures in the next three months.
BOE (Bank of England) Governor Carney has been ahead with his upbeat remarks on the British economy. He already hinted that the central bank will be looking to hike interest rates ahead of the UK general elections set to take place next year. Of course this depends on whether the economy follows it up with good data or not.
As for the US, the latest round of jobs data has been disappointing and not enough to offset the weakness seen when the cold weather conditions weighed on hiring. The jobs report indicated that the economy is back to its pre-recession levels when it comes to total employment though, suggesting that the Federal Reserve will carry on with its taper plan for the time being.
Fed Chairperson Yellen has mentioned though that hiring remains weak and that the jobs sector could rely on stimulus in the coming months, which suggests that she is not that confident about the economic recovery just yet. The Fed might still decide to reduce or even pause with its taper if more weakness ensues.
Fundamentals favor the British pound against the dollar for now, as the BOE is more inclined to start tightening monetary policy compared to the Fed which is still cautious with its asset purchases reduction. GBP/USD is showing bullish momentum for now but is set to encounter resistance at the pair’s previous highs this year, right around the 1.6800 major psychological level.
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