- GBP/USD gained traction on Wednesday and staged a nice rebound from two-year lows.
- The pullback in US bond yields triggered dollar profit-taking and extended support for the pair.
- Weak US retail sales data failed to impress dollar bulls as attention turns to the FOMC.
The pair GBP/USD gained some positive traction on Wednesday and snapped a five-day losing streak to the lowest level since March 2020, around the 1.1935 region touched the previous day. The pair maintained the gains of the intraday rally throughout the first North American session, although it lacked follow through and remained below the 1.2100 mark after the US macro data.
The sharp pullback in US Treasury yields had dollar bulls taking some profits, especially after the recent rally to a two-decade high. The dollar maintained its softer tone and failed to get any respite from the disappointing release of US retail sales figures. In fact, core sales fell 0.3% mom in May, against consensus estimates that pointed to growth slowing to 0.2% from the previous month’s 0.7% rise.
Excluding the auto sector, core retail sales also fell short of market expectations and rose 0.5% over the reporting month, although slightly better than April’s 0.4% rise. The data did little to ease concerns about weakening US economic growth, nor to impress dollar bulls. However, expectations of more aggressive monetary policy tightening by the Federal Reserve helped limit deeper dollar losses and limited GBP/USD’s significant gains, at least for now.
Investors seem convinced that the Fed will raise interest rates at a faster pace to curb rising inflation. Fed funds futures indicate increasing odds of a big 75 basis point rate hike in the next two meetings. Therefore, the market’s attention will remain on the outcome of the 2-day FOMC monetary policy meeting. The decision is expected to be announced later in the US session, which will weigh on the dollar and produce short-term trading opportunities around the GBP/USD pair.
Technical levels
Source: Fx Street
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