For most of early 2005, the pound/U.S. dollar rate (GBP/USD) has been confined to a large sideways range, trading between roughly 1.85 and 1.93. A rally would have to push through the 1.93 ceiling to open the door to a challenge of the major resistance (and a roughly 12-year high) around 1.95. GBP/USD last traded in late December.
To a large extent, which way the pound breaks out of this sideways range will depend on action in the U.S. dollar. If the greenback were to resume its longer-term downtrend, it could send the pound back toward the 1.95/1.96 resistance area, analysts say.
“We think on a resumption of broad weakening in the U.S. dollar, the pound will be one of the favorite vehicles to play that, because it has a better yield than the Euro or the Swiss franc,” says Ideaglobal’s Callow.
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