GBP/USD breaks above 1.2000 as US dollar drops further

• Risk sentiment favors the pound on Monday.
• Busy week in the UK between politics and key data.
• Cable faces next resistance levels at 1.2050 and 1.2065.

The GBP/USD broke above 1.1990 during the American session and jumped to 1.2033, reaching the highest level since July 8. It is hovering around 1.2010/15, up 150 pips for the day, boosted by a weaker US dollar.

Improvement in risk sentiment

Equity prices ended higher in Europe and the Dow Jones gains 0.54% on Monday. The latest round of US economic data and signs the Federal Reserve will hike rates by “just” 75 basis points contribute to improving market sentiment. Investors are also looking at the first corporate results for the second quarter.

In the UK, the political drama continues. The final candidates to become Prime Minister should be clear by Thursday. Besides politics, UK economic data will be key during the week. On Tuesday, labor market is due. Later during the week, CPI, PMI and retail sales will be released. 

Bank of England’s next meeting is on August 4. A 50 basis points rate hike is priced in. BoE Saunders said on Monday that interest rates could top 2% in 2023 and emphasized the central bank must act to prevent high inflation.

In the US is a quiet week regarding economic data. The attention is set on the Federal Reserve meeting next week. Market participants see a 75 basis point. The odds of a larger increase softened on Friday.

Looking at 1.2050

The very short term bias is bullish for GBP/USD. Although the pair is facing a strong resistance ahead around 1.2050 and also at 1.2065. So a firm break above is needed in order to clear the way to more gains. While below the mentioned area, the upside would be seen as limited. The immediate support might be seen at 1.1950 followed by 1.1920 and 1.1850.

Technical levels