GBP/USD gains steadily on weaker dollar

• The pound sterling extended its gains amid a risk drive.
• Federal Reserve officials see a double threat of excess and lack of adjustment.
• GBP/USD Price Analysis: Range bound around 1.1800-1.1900 in the absence of a catalyst.

The pound sterling (GBP) It rose in the North American session, even as the comments from the hawkish Federal Reserve (Fed) continued, although officials expressed the likelihood of moderating the pace. Another factor, the Covid-19 outbreak in China, sparked investor fears, though they faded as Wall Street traded higher. At the time of writing, GBP/USD is trading at 1.1872, up 40% from its opening price.

On Monday, the president of the San Francisco Fed, Mary Daly, expressed concern about the excess tension, and foresees that rates will initially be located at 5%, and from there, rates could rise, depending on the data. Cleveland Fed President Loretta Mester said the pace of interest rates may be reduced in the next month. Mester commented that the pause is not an option and agreed with Daly, expecting rates to be around 5%.

The Dollar Index (DXY), a gauge of the value of the dollar against a basket of pairs, falls 0.37%, from 107.747 to 107.381, signaling a tailwind for sterling.

Meanwhile, the ongoing Covid-19 crisis in China soured market sentiment on Monday, though it subsided as Chinese authorities did not re-impose tighter lockdowns. Some of the latest measures suggested that some schools were returning to online teaching, while some districts in Beijing were asking citizens to stay home for at least five days.

In the UK, the pound sterling is supported by expectations that the Bank of England (BoE) will increase borrowing costs as it struggles to control inflation that has been high for 40 years. As for the fall budget presented by Chancellor Jeremy Hunt, it was well received by investors, with some analysts calling it a deflationary budget.

However, the gloomy economic outlook for the UK favors a further fall in GBP/USD. Despite mounting recession fears in the United States, the interest rate differential between the Federal Reserve and the Bank of England would strengthen the US dollar (USD), so GBP/USD could head lower.

GBP/USD Price Analysis: Technical Perspective

GBP/USD consolidates around the 1.1800-1.1900 zone after rebounding from weekly lows around 1.1750. In the European session, GBP/USD hit a daily high above 1.1900, although it fell back on comments from the Federal Reserve. Also, the Relative Strength Index (RSI) is almost flat in bullish territory, which means that buying pressure is losing momentum.

If GBP/USD breaks above 1.1900, next resistance would be the November 17 high at 1.1957, followed by the psychological level of 1.2000. On the other hand, the first support for GBP/USD would be 1.1800, followed by last week’s low of November 17, 1.1762.