GBP/USD refreshes weekly tops, 1.3900 mark back in sight amid weaker USD

• GBP/USD gained strong follow-through traction for the second successive session on Friday.
• The risk-on impulse in the markets undermined the safe-haven USD and remained supportive.
• Hawkish Fed expectations and rallying US bond yields could act as a tailwind for the USD.
• Bulls might now wait for a sustained move beyond the 1.3900 mark before placing fresh bets.

The USD selling picked up pace during the first half of the European session and pushed the GBP/USD pair to fresh weekly tops, around the 1.3885 region in the last hour.

A combination of supporting factors assisted the pair to build on the previous day's strong positive move and gain follow-through traction for the second consecutive session on Friday. With the latest leg up, the GBP/USD pair has now rallied nearly 100 pips from sub-1.3800 levels, or one-and-half-week lows touched on Wednesday.

The British pound was supported by the Bank of England Governor Andrew Bailey's hawkish comments on Wednesday, saying that half of the MPC members already believe the minimum conditions for a rate hike have been achieved. This, along with the emergence of fresh selling around the US dollar provided an additional boost to the GBP/USD pair.

The risk-on impulse – as depicted by a solid rebound in the global equity markets – turned out to be a key factor that undermined the safe-haven greenback. This, to a larger extent, helped offset mixed UK macro releases, which showed that the economic activity decelerated sharply in July and posted a modest 0.1% growth during the reported month.

That said, expectations for an imminent Fed taper announcement in 2021, along with a strong rally in the US Treasury bond yields should help limit any deeper losses for the USD. Investors now seem convinced that the Fed would eventually begin rolling back its massive pandemic-era stimulus sooner rather than later.

The market speculations were further fueled by Fed Governor Michelle Bowman's comments on Thursday, saying that the central bank was close to announcing the start of tapering its $120 billion in monthly bond purchases. This might hold bulls from placing aggressive bets and act as a headwind for the GBP/USD pair.

Hence, it will be prudent to wait for some follow-through buying beyond the monthly swing highs, around the 1.3890 region, before placing aggressive bullish bets. A subsequent move above the 1.3900 mark will set the stage for a further near-term appreciating move, possibly back towards reclaiming the 1.4000 psychological mark.

Technical levels to watch