GBP/USD intermarket: yield spread to turn less negative on less hawkish Fed?

Currently, GBP/USD is trading at 1.2251, up 0.63% on the day, having posted a daily high at 1.2253 and low at 1.2156.

Further to yesterday's view on GBP, (GBP/USD, Brexit, Fed, Washington risks: a good case for a correction to at least 1.2300?), it seems as though that the trade is playing out and the bulls are in control with eyes on the 1.23 handle, with the possibility for an extension towards 1.2400. The market does not seem so concerned about a second referendum by the Scots nor so much around the possibility of Article 50 being triggered this week. 

• UK PM May: The decision to seek a new independence referendum is "deeply regrettable."
• Another Scottish referendum would be divisive – UK PM Spokesman

We have two years of negotiations ahead of us in respect to Brexit and the more pressing risks are associated with the elections taking place in The Netherlands this week and the French polls. We also have the Fed and the US debt ceiling allowances coming to an end this Tuesday, both of which could be a real problem for dollar bulls. 

Article 50 and Indyref2: no problem for the pound

If the Fed's dot plot is somewhat looser or if Washington is looking like a real hindrance for the Trump fiscal stimulus trade, the dollar and US stocks could find themselves up against it. A correction in the dollar and stocks could be a trigger for cable to take off as the yield spread turns more positive in sterlings favour.  At the end of Feb, the US 10y rallied from 2.35% while the UK's remained subdued at 1.14% before only drifting higher with a slight deviation in peaks and troughs along the way from today's 1.23 median level. Should we see a continuation of the downside in US yields, a break of 2.50% (3rd March levels) could expose at least 1.2300 in cable to the upside, (3rd March levels).

GBP/USD levels

Analysts at Commerzbank explained that the market will stay directly offered below the 1.2376/1.2406, the 55 and 20-day moving averages. However, "Initial resistance is 1.2583 (9 the Feb high).  Only above 1.2666 channel would allow for further strength to the 1.2776 December high. Between here and 1.2836 lies several Fibonacci retracements and major resistance and we suspect that it will struggle here." To the downside, the same analysts would allow for a minor rebound ahead of further losses to 1.1988/80 recent low and the bottom of the 5-month range at 1.1925.