GBP/USD resumes run beyond 1.3600

GBP/USD resumes run beyond 1.3600

GBP/USD trades well above the 1.3600 mark in the American session, following comments from the BoE and the Fed's heads. Diminishing recession-related concerns are undermining the sentiment, despite persistent uncertainty about inflation. Hopes about easing Middle East tensions add to the upbeat mood. 

GBP/USD Technical Overview

The Relative Strength Index (RSI) indicator on the 4-hour chart edges higher but remains below 70, suggesting that GBP/USD has more room on the upside before turning technically overbought. On the upside, 1.3630 (static level) aligns as the next resistance level before 1.3700 (static level, round level) and 1.3740 (static level).

Looking south, support levels could be spotted at 1.3580 (static level), 1.3530 (100-period Simple Moving Average) and 1.3500 (static level, round level).

After falling to its weakest level in a month early Monday, GBP/USD made a sharp U-turn and ended the day decisively higher. The pair preserves its bullish momentum and trades near 1.3600 in the European session on Tuesday as market focus shifts to Federal Reserve (Fed) Chairman Jerome Powell's testimony before the House Financial Services Committee.

News of Iran and Israel agreeing to a ceasefire helped the market mood improve late Monday and caused the US Dollar (USD) to come under heavy selling pressure. As risk flows continue to dominate the financial markets on Tuesday, the USD struggles to find demand and allows GBP/USD to continue to stretch higher. At the time of press, US stock index futures were rising between 0.7% and 1.2% on the day, while the USD Index was down about 0.25%.

After delivering the Semi-annual Monetary Policy Report, Fed Chairman Powell will respond to questions. Investors will scrutinize Powell's comments for fresh hints on the timing of the next rate cut.

In an interview with CNBC last Friday, Fed Governor Christopher Waller said that the Fed is in a position to cut the policy rate as early as July, arguing that they should not wait for the job market to crash to ease the policy. On a similarly dovish note, Fed Governor Michelle Bowman said on Monday that she would be in favour of lowering the policy rate at the next meeting, if inflation pressures were to stay contained.

According to the CME FedWatch Tool, markets are currently pricing in about a 20% probability of a rate cut in July. In case Powell leaves the door open for a policy move next month, the USD could weaken further with the immediate reaction, triggering another leg higher in GBP/USD. Conversely, the USD could stage a rebound and cause the pair to correct lower if Powell opposes the view of a July rate cut by repeating that they need more data before deciding on the next policy move.