As a rule, investors' interest in a particular currency is closely associated with a big number of events in economic and (or) political calendar. If the calendar is almost empty, currencies move rapidly, allowing traders to earn good money. This also happens in case of unexpected events or if one currency follows another. We saw something similar during the week that ended on July 24, when the British pound rose above $1.285, reacting sensitively to the large-scale sell-off of the US dollar.
However, it is impossible to say that the pound/dollar pair soared to 4-month highs only because of the weakness of the US dollar. Traders were encouraged by the data on the British retail sales and business activity. In June, retail sales advanced by 13.9% on a monthly basis whereas the UK business activity reached the highest level since 2015. Their dynamic indicates a V-shaped recovery in the UK's economy. Of course, there was not hope for such a jump after the country's GDP inched up by 1.8% in May. As a result, the yield of local bonds hit historical lows. Besides, there was a possibility that the Bank of England could introduce negative rates.
UK's bonds yield
Rate Expectations in the UK
When pessimism is replaced by hopes, the currency starts moving upwards. The pound sterling was no exception. Amid strong data on retail sales and PMI, it soared above $1.28 for the first time since early March. The pair's bulls chose good time as they were supported by sellers of the US dollar.
Notably, in the US, the epidemiological situation is really alarming thus weighing on the greenback. Moreover, diversification of gold and foreign exchange reserves by Central banks makes the position of the US currency extremely vulnerable.
Let's take a look at Brexit, which is usually considered as a bearish factor for the pound sterling. Although, Michel Barnier, the EU's chief negotiator, said that free trade talks are unlikely to continue if London does not back down on its demands. Besides, David Frost warned that the parties may not reach an agreement. In fact, the negotiations are balancing between a breakdown and a breakthrough, and this leaves hope for signing a deal.
Thus, the pound/dollar pair is rising amid falling US dollar, unexpectedly strong macroeconomic data from the UK, and hopes that London and Brussels will come to an agreement in the near future. Traders opened long deals after the pair broke the levels of 1.2645 and 1.167. The target is at 1.3.
From the technical point of view, on a daily chart, we can see a formation of the Expanding wedge pattern.
GBP/USD, daily chart