The cable turned negative on Thursday after a five-day winning streak as risk sentiment seems to be deteriorating in the global financial markets. Yesterday, GBPUSD peaked marginally above the 1.26 handle but was rejected from one-month highs and has been correcting lower since then.
Despite the rally has faltered, downside risks are looking limited at this stage, and the pair derives support from the 1.25 handle. as long as the prices stay above this level, the upbeat scenario is in place. On the other hand, in order to resume the ascent and confirm the latest breakout, the pound needs to regain 1.26 on a daily closing basis. At this stage, it seems unlikely as risky assets demand has been waning since the Asian session.
There are no particular drivers that are sending high-yielding assets lower today. Rather, investors decided to take a break after a spectacular rally witnessed this week. Furthermore, the risk-on tone could reemerge quickly if the upcoming data economic data confirms that the global economic recovery has started already.
Elsewhere, the Bank of England Executive Director for markets Andrew Hauser said that negative interest rates won’t happen in the near-term. The statement has supported the cable somehow, as it is seen by traders as yet another confirmation that UK central bank is not eager to pursue negative rates, at least at this stage despite the monetary authorities still leave this option on the table.
In the longer run, dynamics in the GBPUSD pair will depend on several factors, from dollar behavior and general market sentiment to signals from the economy and the Bank of England. Despite the local retreat, the technical picture in the weekly charts remains bullish and continues to improve for the third week in a row after a plunge witnessed in early-May when the prices briefly plunged below 1.21. Now, the pair needs to hold above the 1.25 handle so that to avoid a deeper downside correction in the short term.