The British pound registered the best result among its G10 competitors on Tuesday, recovering more than 150 points against the US dollar, to 1.3287 highs. The rally was triggered by the British Prime Minister Theresa May’s speech, which brought back hopes that the UK’s official withdrawal from the EU could be delayed. The EU officials hinted that Brexit delay was a possibility, if a corresponding request comes from London. The GBP/USD further soared on statements made by opposition leader Jeremy Corbyn, who backed the proposal of a second Brexit referendum. Market participants suggested that another referendum could indicate the majority’s reluctance to support the UK autonomy.
The US dollar has weakened too, spreading bullish sentiment toward the pound sterling in the market. Speaking to Congress on Tuesday, the Federal Reserve Chairman Jerome Powell, once again confirmed the regulator’s wait-and-see approach regarding the rate hike, noting that that future rate increases will depend on continued economic growth. Apparently, Trump's severe protectionist policies coupled with the global economic growth concerns forced the US regulator to reconsider its monetary policy approach.
The dollar’s weakness may preserve for quite a while. The debt-ceiling suspension signed by Donald Trump last year as part of the budget deal with the Congress ends on March 1, 2019. According to the US Treasury Department, the US national debt has hit a new record, topping $22 trillion for the first time in history. Just over the past year, the US Treasury borrowed over $ 1.22 trillion, the biggest amount since 2009. When the Treasury actively attracts loans, the dollar liquidity is withdrawn from the market. This creates a US-dollar demand from the largest banks, which supports the rate. In March, the situation may change. Imposed borrowing restrictions will put pressure on the dollar, resulting in the US currency depreciation.
That being said, further growth of the GBP/USD pair is quite a possibility. If Brexit delay solves Irish border issues between the UK and the EU and the parties reach consensus, and the US dollar, on the other hand, fails to get “fundamental” backup, the GBP/USD may as well reach 1.37 mark. Nevertheless, traders should be vigilant and closely watch Brexit developments. Should the talks about an inevitable "hard" Brexit resume, the market will immediately turn bearish again. Until then, bullish sentiment will prevail.