GBP/USD hit 1.5736 on Thursday, the pair’s highest since June 20; the pair subsequently consolidated at 1.5617 on Friday, 0.26% higher on the week.
Cable is likely to find support at 1.5516, Monday’s low and resistance at 1.5736, Thursday’s high and a one-month high.
The pound turned lower against the dollar on Friday, amid concerns that Spain will need a full bailout, after the state of Valencia requested financial aid from Madrid. In addition, Spain’s government cut growth forecasts for 2013 and said the economy would stay in recession next year.
The news sent Spain’s borrowing costs soaring, with the yield on Spanish 10-year bonds rising to 7.26%, above the critical 7% threshold widely considered unsustainable in the long run.
Sterling rose to a three-and-a-half-year high against the euro on Friday, with EUR/GBP down 0.34% to settle at 0.7782.
The dollar came under broad selling pressure earlier in the week as market participants focused on testimony by Federal Reserve Chairman Ben Bernanke amid speculation that weak economic data out of the U.S. would prompt a third round of quantitative easing by the U.S. central bank.
Bernanke said growth had lost momentum in the first half of the year and added that progress on cutting the U.S. unemployment rate was “frustratingly” slow.
The Federal Reserve chief refrained from indicating whether a fresh round of stimulus was imminent, but reiterated that the central bank was prepared to take further action to support the economic recovery if necessary.
Sterling was also boosted by robust corporate earnings and rising commodity prices, which lifted global equities markets.
In the U.K., Wednesday’s minutes from the Bank of England’s July policy meeting showed that concerns over the debt crisis in the euro zone were instrumental in its decision to implement a further GBP50 billion of stimulus measures.
In the week ahead, investors will be focusing on developments in Spain, while market participants will also be anticipating preliminary data out of the U.K. and U.S. on second quarter economic growth.
Ahead of the coming week, Forex trading outlook today has compiled a list of these and other significant events likely to affect the markets. The guide skips Monday, as there are no relevant events on this day.
Tuesday, July 24
The U.K. is to release industry data on mortgage approvals, a leading indicator of housing market demand.
Later Tuesday, Federal Reserve Chairman Ben Bernanke is to speak; his comments will be closely watched for clues to the possible future direction of monetary policy. The U.S. is also to release preliminary data on manufacturing activity, a leading indicator of economic health.
Wednesday, July 25
The U.K. is to publish preliminary data on second quarter gross domestic product, the broadest measure of economic activity and the foremost indicator of the economy's health. The country is also to produce a report on industrial order expectations.
Also Wednesday, the U.S. is to publish official data on new home sales, a leading indicator of economic health, as well as data on crude oil stockpiles.
Thursday, July 26
The U.S. is to release official data on durable goods orders, a leading indicator of production, as well as data on pending home sales and initial jobless claims.
Friday, July 27
The U.S. is to round up the week with advance data on second quarter GDP, the broadest measure of economic activity and the foremost indicator of the economy's health. In addition, the University of Michigan is to release revised data on consumer sentiment and inflation expectations.
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