GBP/USD trades within a consolidation zone around 1.2926 at the time of writing - within touching distance of recent highs.
Markets are looking to the round-number of 1.30 as the next big target for Pound Sterling to take and hold in what would be a pyschological victory for the bulls betting on a stronger UK currency.
Whether or not this will happen is proving to be a point of contention amongst analysts.
Recent strength in GBP/USD is actually seen as being more of a function of US Dollar weakness rather than Sterling strength - an important point for those with an interest in this market to grasp.
US data continues to disappoint against expectations with last week's softer-than-expected consumer spending and inflation reports proving particularly damaging.
"Just a week ago investors were convinced that the Federal Reserve will raise interest rates next month but in light of recent reports, they are growing skeptical of the central bank's resolve," notes Kathy Lien, Director at BK Asset Management.
The Dollar's weakness leaves the GBP/USD in an interesting position.
GBP/USD started the new week with another attempted rush into the mid-1.29s with traders inevitably eyeing out that big 1.30 figure.
A break above here would represent quite a significant achievement for the long-suffering Pound that last offered conversions above here in late September 2016.
Back then Sterling was on a one-way ticket journey south and the level offered very little by way of support.
The fear for those hoping for better exchange rates, however, is that it could now act as a formidable layer of resistance that will oppose any notable jumps in the value of Sterling.
Indeed, the UK currency lost ground last week following four consecutive weeks of gains and its 0.68% decline was its largest retreat since early April.
“This minor pull-back isn’t too surprising when one takes into account the powerful advance that preceded it, which had left Sterling looking relatively overbought on a short-term view and, as a consequence, somewhat vulnerable to a pull-back of some sort,” says Bill McNamara at brokers Charles Stanley.
McNamara says it is by no means clear that this marks the end of the rally and we’d probably need to see a reversion through the top of the previous range, i.e. at 1.27 or so, before it would be appropriate to make that argument.
“An argument can be made for recent GBP gains completing a broad retracement from 1.1500 or so last October and if this is indeed the case 1.3000 should remain out of reach going forwards,” says analyst Lucy Lillicrap at Associated Foreign Exchange, a UK currency brokerage firm.
The analyst argues that no such top has yet been confirmed around 1.30 and provided values manage to re-base hereabouts any extension beyond 1.2995/05 may yet re-expose 1.3225 or so first/next instead.
Any weakness should see local supports as being vulnerable to attack over coming sessions and while buying interest starts at 1.2825/35 a subsequent breach of 1.2365/75 (key) support would suggest an important high has already been seen.
Can Good Data Give Sterling a Shot at Taking Higher Levels?
What is certain is that it will take a trigger to stimulate the kind of buying interest in the Pound required to carry the GBP/USD north of 1.30.
This is a busy week for UK economic data releases and there could well be the kind of stimulus required to carry the market higher.
Traders will be looking for signs as to whether the slowdown seen in the first quarter of the year is extending into the second quarter.
Inflation data out on Tuesday beat analyst expectations having risen 2.7% where analysts were expecting a rise of just 2.6%.
Typically such a beat on estimates would propel the Pound higher but that Sterling has actually fallen suggests to us that traders are more interested in upcoming data releases.
Instead we may need to wait for the wage data included in the UK jobs report on Wednesday to see a positive boost for the pound.
The Bank of England made an interesting point last week saying that wages could rise due to higher than expected levels of business investment.
The weekly wage data for March is expected to show an increase to 2.4%, from 2.3% in February, however there is a chance that a larger than expected figure for jobs growth in the three months’ to March, which is expected to come in at a lacklustre 21k, could see a higher figure for wages.
“We believe that an upward surprise in wage and jobs data could be the key driver for the Pound this week, with better than expected numbers driving GBP/USD into a new paradigm between 1.30 and 1.35 as we wait for the UK election on June 8th,” says Kathleen Brooks Brooks at City Index.
Finally, retail sales data that will be released on Thursday.
The market is expecting consumption to bounce back in April, with retail sales excluding fuel expected to rise 1%, partly reversing the 1.5% decline in March.
Although the late timing of Easter could boost sales figures, the ONS should adjust for this, so any boost to sales growth should highlight actual UK consumer strength.
A pick up in wage growth would also bode well for retail sales going forward, which could be a powerful driver to lift GBP/USD above 1.30.
“Overall, a stronger spate of UK economic data this week may restore confidence in the UK economy, after Citi’s UK economic surprise index fell to its lowest level since June last year in recent months. This could feed into stronger UK bond yields; it could also bring forward expectations for a UK rate rise, which is not expected until mid 2018. This could be a powerful tonic to boost the Pound this week,” says Brooks.