The British Pound is gaining support from several drivers at a time, managing to add more than 1.5% since Tuesday to levels above 1.3400 in the GBPUSD pair, which we last saw a month ago.
The British currency’s ability to show buyer support on dips below 1.32 earlier in December has attracted the attention of speculators, who come into play as financial market liquidity declines in the run-up to the Christmas holidays. Very often, there are more decisive moves in the thin market during pre-Christmas and between Christmas and New Year period, much of which the market recovers back in the first days after the holidays.
The Pound also looks attractive for short-term buyers because it positively correlates with risky assets. Strengthening demand for equities as part of the Santa Rally has determined the direction in which GBPUSD will move in the short term.
GBPUSD is also interesting from a tech analysis perspective. The British currency has gained support after a 50% pullback from May 2020 lows at 1.2070 to this year peaks near 1.42, and a 61.8% rally from the March 2020 lows. Globally, this reversal from support could be the end of a correction and the start of a new GBPUSD upside wave with a long-term target at 1.60.
However, a move towards levels we last saw only in 2014 is only looking plausible if the Bank of England will repeatedly raise rates faster than the Fed and well above inflation, copying the policy of the early 2000s.
A much closer target for speculators at the end of the year is 1.3600, around which the resistance area of the descending trading range of the second half-year passes. A sure exit above this would signal that not only speculators but also more structural forces are in play.