- GBP/USD gains positive traction on Thursday and recovers some of the previous day’s decline.
- Pullback in US bond yields keeps dollar bulls on the defensive, offering some support for the pair.
- Expectations of an aggressive Fed rate hike and risk-off sentiment should limit any significant decline in the dollar.
- Diminishing odds of further rate hikes from the Bank of England could also help limit the pair’s gains.
The pair GBP/USD moves higher during the early part of the European session and is now trading near the daily high around the 1.2375-1.2380 area.
The pair attracted some buying on Thursday and recovered part of the previous day’s decline, although a significant recovery still seems difficult. A softer tone around US Treasury yields kept dollar bulls on the defensive and offered some support to the GBP/USD pair. However, risk-off sentiment coupled with prospects for more aggressive monetary policy tightening by the Fed should cap USD losses and limit the profits of the pair.
On the other hand, sterling was weighed down by the risk of a recession in the uk and the decrease in the probability that the Bank of England will raise interest rates. The latest UK consumer inflation figures, released on Wednesday, coupled with a surprising contraction in the economy in March, fueled fears of stagflation. In addition, rising wages threaten to further exacerbate inflationary pressures and hurt consumer spending, forcing investors to lower expectations of a Bank of England rate hike.
Market participants also seem concerned that pressure from Britain to effectively nullify parts of the Brexit trade deal in the Northern Ireland Protocol increase tensions with Europe and trigger a trade war in the midst of the current cost of living crisis. This could further weigh on the UK economy and validate the Bank of England’s gloomy outlook, which, in turn, should curb any significant GBP/USD gains. Therefore, any further move to the upside would be seen as a selling opportunity.
Investors now await the US economic calendar, with the release of the Philadelphia Fed manufacturing index, the usual weekly initial jobless claims and existing home sales data later in the American session . Additionally, US bond yields and overall market risk sentiment will influence dollar price dynamics. This coupled with Brexit-related news should give the GBP/USD pair a further boost.
GBP/USD technical levels
Source: Fx Street
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