- GBP/USD rises to a three-week high on Thursday amid subdued USD price action.
- Recession fears and risk-off sentiment should limit deeper losses for the safe-haven USD.
- Doubts over further rate hikes from the Bank of England and Brexit woes could cap sterling’s gains.
The pair GBP/USD has reversed a drop earlier in the European session to 1.2550 and has returned to close to three-week highs reached earlier this Thursday. At time of writing, the pair is quoting around the 1.2585 area, up 0.10 on the day.
The US dollar struggled to capitalize on the previous day’s bounce from a nearly one-month low, which in turn sent GBP/USD higher for a second day in a row on Thursday. The minutes of the FOMC meeting on May 3 and 4 showed that most participants believed that an interest rate hike of 50 basis points would probably be appropriate in June and July. However, the expected move is already priced in by markets and the lack of major surprises reaffirmed the idea that the Fed could pause the cycle of rate hikes later this year. This, coupled with a softer tone around US Treasury yields, acted as a dollar headwind.
Having said that, concern about weakening global economic growth and risk aversion sentiment could continue to benefit the dollar as a global reserve currency. Investors continue concerned that more aggressive action by major central banks to curb inflation and the war between Russia and Ukraine could pose a challenge to the world economy. Apart of this, the diminishing probability of further rate hikes by the Bank of England and the problems of Brexit they should deter investors from opening aggressively bullish positions on the British pound. This warrants caution before positioning for any further GBP/USD upside moves.
There will be no major economic releases in the UK, so the pair will be at the mercy of the dollar’s price dynamics. Later, at the start of the American session, inverses will reference the US economic calendar, with the release of preliminary first quarter GDP, the usual initial weekly jobless claims and pending home sales. Aside from this, the overall market risk sentiment will drive USD demand and could create short-term opportunities around the GBP/USD pair.
GBP/USD technical levels
Source: Fx Street
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