- GBP/USD has failed to hold onto its modest early gains to the 1.2300 zone.
- A gloomy outlook for the UK economy and renewed Brexit fears act as a headwind for the British pound.
- Expectations for an aggressive Fed rate hike and risk-off sentiment benefit the USD and put pressure on the pair.
The pair GBP/USD remains on the defensive during the early part of the European session on Monday, moving close to the lower end of its daily range around the 1.2225-1.2220 area.
The pair found fresh selling near the 1.2300 level on Monday and halted its modest recovery from a two-year low around the 1.2155 region touched on the last day of the previous week. UK macroeconomic data validated the gloomy outlook for the uk economy and suggested that the Bank of England’s current rate hike cycle may be about to come to a halt. Apart of this, news that the British government is expected to reveal a plan to unilaterally change the Northern Ireland protocol on Tuesday they acted as a headwind for the British pound.
On the other hand, the US dollar remained close to its two-decade highs and continued to receive support from expectations that the Federal Reserve will tighten its monetary policy at a faster pace to curb rising inflation. In fact, markets are expecting a Fed interest rate hike of at least 50 basis points in the next two meetings. This, coupled with the prevailing risk aversion environment, has bolstered the dollar as a safe haven. Investors now seem concerned about weakening global growth amid a more aggressive move by major central banks, the war in Ukraine and China’s zero-covid policy.
The strengthening of the USD was another factor that put some downward pressure on the GBP/USD pair. The fundamental backdrop appears to be leaning heavily in favor of the pair’s bears and supports the prospects for an extension of the pair’s recent bearish move. That said, the absence of relevant UK economic releases warrants some caution. Later, at the start of the American session, investors will look to the New York Empire State Manufacturing PMI as a benchmark. This coupled with broader risk sentiment will weigh on the dollar and provide further momentum.
Next, the focus will be on Tuesday’s monthly UK employment data, followed by US retail sales and industrial production figures. Investors will also be scrutinizing comments from various FOMC officials, including Fed Chairman Jerome Powell, for clues about the possibility of a 75 basis point rate hike. This would boost short-term dollar demand and help determine the next directional move for GBP/USD.
Technical levels
Source: Fx Street
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