GBP/USD rallies as 'Sell America' trade returns on Fed independence fears

The British Pound (GBP) stages a comeback on Monday as traders grow risk-averse following threats to the US Federal Reserve (Fed) independence. A scarce economic docket in the UK shifts the focus to geopolitical developments and the US Dollar (USD), which continued to soften as the 'Sell America' trade is back into play. At the time of writing, GBP/USD trades at 1.3473, up 0.55%.

Sterling rebounds as political pressure on the Federal Reserve dents the US Dollar

Over the weekend, Fed Chair Jerome Powell released a statement and commented in a video that “the US central bank had been served grand jury subpoenas from the Justice Department threatening a criminal indictment.” He said the move “should be seen in the broader context of the administration’s threats and ongoing pressure,” and added that “the threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President.”

Consequently, the Greenback plunged, as depicted by the US Dollar Index (DXY). The DXY, which measures the performance of the buck’s value versus six currencies, is down 0.35% at 98.79.

Although US President Donald Trump denied any knowledge of the investigation into the central bank, he has consistently bullied Fed Chair Powell over the lack of a reduction in interest rates as he expected.

Across the pond, some analysts argued that the reduction in fiscal and political risks in the UK is a tailwind for the Pound, following Chancellor Rachel Reeves' budget presentation in November.

Traders’ eyes are on the release of the UK’s Gross Domestic Product figures on Thursday and jobs data next week, which could determine the Bank of England’s path.

GBP/USD Price Forecast: Technical outlook

GBP/USD is enjoying a spike on bullish momentum, as depicted by the pair hitting a three-day high at 1.3485, along with the recovery of the Relative Strength Index (RSI), which remains in bullish territory.

If the pair exceeds 1.3500, this would clear the way to test the yearly high of 1.3567, ahead of 1.3600. Conversely, a drop below 1.3400 would expose the 200-day SMA at 1.3386.