GBP/USD laughs at risk aversion and hits two weeks highs above 1.2500

• US dollar extends slide, DXY drops 1% to lowest in two weeks.
• Rebound in Wall Street fades, Dow Jones falls by 1.10%.
• GBP/USD rebounds sharply, back above the 20-day SMA.

The GBP/USD is rising on Thursday, making a full recovery from Wednesday’s slide even as the stock market stays in red and under pressure. The pair rose more than 150 pips from the daily low and recently hit 1.2512, the highest level since May 5.

Weaker greenback behind cable’s rally

A broad-based dollar weakness boosted GBP/USD. The DXY is falling by 1.05%, trading at two-week lows under 102.80 even as risk-off still remains in place. The FTSE 100 dropped 2.12% and in Wall Street, the Dow Jones falls 1.00%. The Nasdaq managed to climb to positive ground and gain 0.35%.

The demand for quality assets boosted government bonds. The US 10-year yield stands at 2.81%, significantly away from the 3% it reached on Wednesday. UK yields held in the recent range (10-year around 1.85%). The slide in yields weakened the dollar that is the worst performer in the G10 space on Thursday.

Economic data from the US showed Initial Jobless claims to the highest since January at 218K while Continuing Claims hit the lowest since 1970. The Philly Fed tumbled to 2.6 in May (against market consensus of 16). Existing Home Sales fell in April 2.4%. On Friday, the April Retail Sales report is due in the UK.

GBP/USD back above the 20-SMA

The rally in GBP/USD pushed the price back above the 20-day Simple Moving Average. The pound is having difficulties staying above 1.2500. A daily close clearly above would add support for an extension of the move to the upside.

A new failure here would expose again the 1.2330 low. Before that level, the 1.2400 zone offers interim support.

Technical levels