- GBP/USD rebounds from weekly low reached on Wednesday amid modest dollar weakness.
- The positive tone around the equity markets is weighing on the safe haven USD.
- Recession fears, US-China tensions and hawkish comments from Fed officials cap dollar losses.
- Investors also seem reluctant ahead of Thursday’s BoE decision and Friday’s NFP.
The pair GBP/USD caps this week’s decline from the highest level since late June and attracts some buying near the 1.2135 area, or a weekly low hit on Wednesday. The pair rises to fresh daily highs at the start of the European session, with the bulls now looking take advantage of the momentum beyond the 1.2200 level.
The US dollar is struggling to build on the previous day’s nice rebound from a multi-week low and is sloping lower on Wednesday, which in turn offers GBP/USD support. The modest recovery in global risk sentimentwhich is reflected in a positive tone in the stock markets, is weighing on the US dollar safe haven. That said, a combination of factors could cap any deeper dollar losses and limit the pair’s rally, at least for now.
With the background of growing fears of a recessionIncreasing diplomatic tensions around US House Speaker Nancy Pelosi’s visit to Taiwan should dampen any upbeat moves in the markets. On the other hand, Statements from Fed officials hinting at more interest rate hikes in the near future could act as a tailwind for the dollar. This could deter the pair’s bulls from opening aggressive GBP/USD positions ahead of the key central bank event.
It is planned that the Bank of England announce its monetary policy decision on Thursday and is expected to raise interest rates by 50 basis points, which will be the biggest increase since 1995. Markets, however, appear divided on further rate hikes. Therefore, the focus will be on the short-term political outlook, which will weigh on the British pound. Traders will then focus on the release of the monthly NFP US employment report on Friday.
Meanwhile, Wednesday’s release of the UK Services PMI and the US ISM Services PMI would be seen as short-term opportunities around the GBP/USD pair. That said, any significant market reaction will most likely be short-lived, warranting some caution before determining the next directional move.
GBP/USD technical levels
Source: Fx Street
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