- GBP/USD fluctuates throughout the day, with traders waiting for Powell’s comment on the matter.
- US growth in the second quarter improved but remains below the 0% threshold; a recession is looming in the US
- Money market futures expect the Bank of England to raise rates by 250 basis points by May 2023.
The GBP/USD rose modestly in the American session, holding afloat after breaking below 1.1800 for the fourth time this week, but a change in sentiment increased appetite for the British pound. Factors such as China’s stimulus to the housing and construction markets underpinned global equities.
The GBP/USD pair hit a daily low around 1.1783 during the Asian session, before rising towards a daily high of 1.1864. However, it fell back towards current exchange rates. At the time of writing, GBP/USD is trading at 1.1817, recording a modest gain of 0.18%.
Before the open on Wall Street, the US Commerce Department reported that US Gross Domestic Product for the second quarter improved, by -0.6%, above estimates of -0.8%, and above advanced reading. At the same time, the Bureau of Labor Statistics (BLS) revealed that initial jobless claims for the week ending August 20 were lower than expected, coming in at 243,000 from 253,000.
Separately, Fed policymakers, led by Esther George of the Kansas City Fed, said the US central bank would keep rates above 4% and that they wanted to see a full quarter of data for consistent inflation to know where things are going.
Earlier, Atlanta Fed Raphael Bostic said he is between 50 and 75 basis points undecided and stressed that expectations of a Fed kingpin are “wrong.” Echoing his comments, Philadelphia Fed Patrick Harker said he likes to see the Federal Funds Rate (FFR) at 3.4%, and it may stay there for a while. He is in favor of a 50 basis point increase, but he wants to see the next report on inflation.
Meanwhile, a gloomy economic outlook in the UK, with rising energy bills, Bank of England (BoE) recession projections for at least 18 months and a slowing economy, would make the job harder. of the BoE, with double-digit inflation levels. However, as STIRs show, money market futures expect 250 basis points of further hikes by May 2023, which means investors expect the Bank rate to hit 4.25%.
What to watch out for
The Fed’s favorite inflation measure, July PCE, headline and core figures will be released on the US economic calendar ahead of the Wall Street open. Later, US Federal Reserve Chairman Jerome Powell will take the podium.
GBP/USD Price Analysis: Technical Outlook
GBP/USD is trading below the midline of a parallel descending channel, pierced earlier in the day but which has retraced, trading below the daily close on 24th August. Although the pair is trading above its opening price, a daily close below 1.1795 would pave the way for a retest of year lows around 1.1716. Otherwise, a break above 1.1878, the high of the week, would pave the way for 1.1900.
Technical levels
Source: Fx Street
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