**GBP/USD Extends Into a Two-Day Bullish Recovery as 1.34 Holds**
*Original reporting by Ross J Burland, FXStreet*
## Overview
The British Pound (GBP) surged in value against the US Dollar (USD) recently, marking a two-day bullish recovery that has captured the attention of forex traders worldwide. As the key 1.34 level was held, market sentiment around Sterling has begun to shift, buoyed by stabilizing risk appetite, evolving fundamental factors, and technical signals pointing toward further upside.
This article dissects the evolving dynamics in the GBP/USD pair, reviews the key influences behind the recent bullish movement, analyzes the technical backdrop, and assesses potential scenarios for traders considering their next steps. All market data and analysis are attributed to Ross J Burland of FXStreet unless otherwise specified.
## Market Context
The GBP/USD currency pair had been under pressure in recent sessions, weighed by a combination of risk-off sentiment and renewed USD strength. However, after briefly dipping below the 1.34 mark, the pair has shown resilience, bouncing back in a recovery rally.
Key factors shaping the context include:
– Renewed buying interest as GBP/USD stabilized above 1.34
– Improving global risk appetite, diminishing demand for USD as a safe haven
– Stabilizing UK economic data, spurring some confidence in Sterling
– Market anticipation ahead of upcoming central bank events
## Drivers of the Two-Day Bullish Recovery
Several core drivers have contributed to the rebound in GBP/USD, reversing some recent losses and providing a springboard for the current uptrend.
### Technical Support at 1.34 Proves Significant
Traders continue to monitor natural psychological and technical levels for hints about future price behavior. In the case of GBP/USD, the 1.34 level functioned as a consistent support:
– Price action repeatedly found bids near or slightly below 1.34, inviting buying interest.
– Chartists note this threshold as a prior congestion zone with historical significance, increasing its relevance as support.
– Holding above 1.34 is seen as a sign that the latest sell-off was overextended, warranting at least a corrective bounce.
### Improving Risk Sentiment Weakens the USD
Global market sentiment plays a persistent role in major currency direction:
– Stock markets and equities stabilized, suggesting investors are willing to take on more risk.
– As a result, the demand for US Dollars as a haven moderated, putting downward pressure on the USD.
– Some headaches around the Omicron coronavirus variant faded, lessening fears of broad economic fallout.
### UK Macroeconomic Backdrop Provides Relief
While headwinds remain for the UK economy, several recent data points and developments have been reassuring:
– Latest UK PMI services and manufacturing data held up better than expected, indicating continued economic resilience.
– Inflation data, while elevated, was in line with central bank expectations, reducing market anxiety.
– UK labor market reports showed consistent improvement, supporting wider expectations for a potential Bank of England (BoE) policy response.
### Central Bank Expectations Shift
Forex markets are acutely sensitive to shifts in major central bank policy stances:
– Traders have ramped up expectations that the Bank of England may consider rate hikes sooner rather than later, given persistent inflationary pressures and labor market improvements.
– Meanwhile, the US Federal Reserve remains on a tightening path but has also signaled caution, tempering aggressive bets on the USD.
### Short-Covering and Momentum
Positioning often drives directional moves in major currency pairs:
– After recent declines, GBP short positions were elevated, increasing the likelihood of a sharp bounce as traders closed out bets against the currency.
– Momentum-driven traders have responded to bullish setups, amplifying the recovery.
## Technical Analysis
Technically, GBP/USD’s recovery from the 1.34 level has established a short-term bullish structure. The analysis below, based on the latest charts and indicators as reported by FXStreet, details the critical technical signals
Read more on GBP/USD trading.