GBP/USD extends rebound above 1.3550

• Cable rises further from monthly lows amid a weaker dollar.
• DXY retreats from monthly highs toward 94.00.
• US inflation data due on Tuesday and Wednesday, to be watched closely.

The GBP/USD pair is recovering on Monday after falling last week to 1.3423, the lowest level in a month and slightly above the YTD low. During the American session, cable rose to 1.3578, reaching a fresh intraday high. It is hovering around 1.3550, up more than 70 pips for the day.

The recovery in GBP/USD is being driven by a weaker US dollar across the board. The greenback is retreating after last week rally, continuing the move that started on Friday after the NFP.

Higher US yields are not helping the greenback. The 10-year stands t 1.48%, (up more than 2%). The DXY is falling for the second day in a row, testing 94.00. US inflation data on Tuesday and Wednesday will be watched closely.

Market participants continue to digits the last week’s Bank of England meeting. The dovish tone from the central bank weighed on the pound. During Monday’s European session, the pound strengthened for the first time since the meeting and rose across the board.

Still, what the BoE did and the Brexit concerns could still impact on GBP. “The outlook for GBP will be guided by expectations regarding the pace of BoE policy tightening relative to the policy decisions taken by other major central banks such as the Fed and the ECB.  On the margin, UK politics concerning the issues of Brexit and sleaze may also impact the performance of GBP”, explained analysts at Rabobank.

Supported again above 1.3400

The decline of GBP/US found support above 1.3400, like what happened back in September. If it breaks below, the pound would likely accelerate to the downside. On the upside, a firm recovery above 1.3600 should strengthen the bullish outlook.

Technical levels