- GBP/USD witnessed continued selling for the second day in a row on Tuesday.
- The decline in US bond yields caused a modest pullback in the dollar and helped limit further losses.
- Traders now await Wednesday’s release of UK monthly GDP and US CPI.
The pair GBP/USD added to the previous day’s heavy losses and witnessed sales tracking for the second day in a row on Tuesday. The downward trajectory dragged spot prices to the lowest level since March 2020, although it stopped just short of the round 1.1800 level.
The US dollar trimmed some of its intraday gains to hit a new two-decade high amid a further decline in US Treasury yields, pressured by the global flight to safety. The dollar’s modest intraday pullback was seen as a key factor offering some support to the GBP/USD pair, although a significant recovery still looks elusive.
The growing acceptance that the Federal Reserve will continue its aggressive policy of tightening, despite fears about a possible recession, should continue to act as a tailwind for the dollar. In fact, the June 14-15 FOMC meeting minutes, released last week, stressed the need to fight inflation, even if it means an economic slowdown.
In addition, Atlanta Fed President Raphael Bostic stated that the US economy can cope with higher interest rates and reiterated his support for a further rate hike at the July FOMC meeting. Therefore, the market’s attention will remain focused on the release of the latest US consumer inflation figures, to be released on Wednesday.
Meanwhile, the prevailing risk environment should support the USD’s relative safe-haven status. Apart from this, concerns that the British government’s controversial Northern Ireland protocol bill could trigger a trade war with the European Union and expectations of a less aggressive Bank of England should cap GBP/USD.
The fundamental backdrop supports the prospects for a further short-term depreciation move, though traders may prefer to wait on the sidelines ahead of key macro data from the UK and US. The UK’s monthly GDP report will be released on Wednesday, followed by the latest figures on US consumer inflation.
Also featured on this week’s US economic docket is the release of monthly retail sales data and preliminary consumer sentiment from Michigan on Friday, which will influence dollar price dynamics. Traders will follow signals from broader market risk sentiment to determine the next leg of a directional move for the GBP/USD pair.
Technical levels
Source: Fx Street
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