The Pound is going from strength to strength

The GBP/USD exchange rate is hurtling towards the 2018 highs, after breaking above the psychologically imposing 1.4000.

However, with GBP/USD trading at overbought levels on the RSI, there is a risk of short-term pullbacks.

In a week that had been relatively light on the newsflow front from the UK perspective, the move has really been a continuation of the current narrative with a successful vaccine program providing a tailwind for the currency as the reopening of the economy nears.

Looking ahead to next week, there is little in the way for domestic data and as such, the ebb and flow of the broader risk environment will be closely watched for GBP.

The continuing prospect of a substantial pandemic relief package in the US, along with the relative success of the country’s vaccination program, have combined to raise hopes that the US will lead the global economy out of the slump caused by the spread of Covid-19 but also to increase fears of a jump in inflation.

Those fears have raised the yields on US Treasury bonds and notes, strengthening the US Dollar against most other currencies and, with few signs yet that the climb in USD is coming to an end, the consequent weakness in EUR/USD so far this year looks set to persist in the week ahead.

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