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The Pound to Dollar exchange rate was unable to make much headway beyond a key technical level that lies just above 1.24 and now risks falling back to 1.2250 over the coming days, particularly if Federal Reserve speakers push back against a recent softening in U.S. financial conditions.

GBPUSD spiked to 1.2428 and touched the 200-day moving average (DMA) in the process; a level foreign currency strategists had been watching as a key test of the Pound's fledgling recovery, as there was a high likelihood the rally could stall at this resistance point.

"As we suspected, a failure to break above the 200-day moving average, located at $1.2434, triggered a sharp pullback in GBP/USD, particularly as the pair posted its best weekly performance in a year last week by rising over 2%," says George Vessey, Lead FX Strategist at Convera.

Above: GBPUSD at daily intervals showing the touch of the 200 DMA. Set up a daily rate alert email to track your exchange rate OR set an alert for when your ideal exchange rate is triggered ➡ find out more.

Tanmay Purohit, a technical strategist at Société Générale, says Pound Sterling would need to cross the 200 DMA if a more constructive outlook were to be established.

"Crossing above 200 DMA near 1 2440-1 2460 would mean a larger bounce towards the neckline of the H&S at 1 2610 and 1 2720," he explains.

Image courtesy of Societe Generale.

"GBP/USD recently met target for a Head and Shoulders and formed low near 1 2035 It has recently crossed above the upper limit of a small base and the trend line since July denoting potential upside The pair is fast approaching the 200 DMA near 1 2440-1 2460," says Purohit.

The Soc Gen analyst maintains this level remains an interim hurdle; however, a large downside is not envisaged as the trend line near 1 2180 should cushion the downside.

Bill McNamara, Director at The Technical analyst, notes Pound-Dollar's rally following last week's U.S. jobs report was its largest one-day advance of 2023 and led to an overall gain of 2.1% for the week as a whole.

That was the best weekly performance since last November.

"As the daily chart demonstrates, this surge lifted it through its short-term downtrend and its 50-day moving average and left it at a six-week high. The next target is at 1.246 or so, which would represent a 38.2% retracement of the sell-off that began back in July," says McNamara.

Looking ahead, much of GBPUSD's direction hinges on the Dollar, which suffered a sizeable selloff following last Friday's below-expectation U.S. labour market report, which prompted markets to raise bets the Fed has now completed its rate hiking cycle and that interest rate cuts can come forward.

This lowered the yield of U.S. bonds, bringing down the cost of money in the economy and triggering an easing in financial conditions that the Fed might feel runs contrary to its agenda of lowering inflation.

"At issue will be whether the Fed chooses to push back against the loosening of US financial conditions," says Chris Turner, Head of FX Research at ING. "Now that these financial conditions have fully reversed that October spike, the Fed will presumably want to re-emphasise the risk of further rate hikes."

A number of major Fed speakers are lined up from Tuesday onwards and can push back against this development, and if they are successful, can support the Dollar and further undermine EURUSD's relief rally.

"Risks look skewed to a mildly stronger dollar today," says Turner. "Given the risk that Fed-speak puts equities on the back foot again, risk-sensitive sterling could hand back some of its recent gains... GBP/USD could drop back to 1.2290, perhaps 1.2250".

On Wednesday at 09:30, Bank of England Governor Andrew Bailey will speak at the Central Bank of Ireland's 'Financial System Conference: achieving good outcomes in an uncertain world'.

Bailey will provide the keynote address and follow it up with a 'fireside chat' alongside other panellists.

Therefore, he will likely touch on the UK economy and interest rates at some point in his appearance in Dublin.

Following Thursday's interest rate decision, Bailey said in a media interview he would have to "lean against" market developments following the Bank of England's decision made earlier in the day.

Despite the Bank stating rates would remain at current levels for an extended period, rate cut expectations increased, resulting in the first rate cut being fully priced for September 2024.

Should Bailey push back against these expectations, the Pound can remain supported, and the downside in GBPUSD stays limited.