- GBP/USD extends its slide to hit a three-week low around 1.2397 amid modest US default fears and market optimism.
- A strong US labor market report from the Bureau of Labor Statistics and an unexpected recovery in the Philadelphia Fed’s manufacturing index put downward pressure on the pair.
- Bank of England spokesmen suggest a gradual and predictable approach to QE, which provides little support for the pound.
The pair GBP/USD extends its declines beyond the 1.2400 zone, reaching a fresh 3-week low around 1.2397, as sterling takes a hit, taking advantage of a light economic calendar in the UK. Fears of a potential default in the United States (US) are easing as talks between US congressional leaders and the White House showed hopes of a deal being reached before 1 of June. GBP/USD is trading at 1.2423 after reaching a daily high of 1.2492.
A positive US labor market and fading default fears weighed on GBP
US stocks are trading mixed, though earlier they rode a wave of optimism, posting gains due to a buoyant market environment. Discussions about the US debt ceiling are ongoing, underscored by recent remarks by the Speaker of the US House of Representatives, Kevin McCarthy. McCarthy stressed the critical need to reach a deal this week, reiterating the urgency for Congress to vote to avoid a potential default in the coming week.
The US Bureau of Labor Statistics (BLS) reported on the labor market. Initial jobless claims for the week ending May 13 saw a lower-than-expected increase of 242,000, a notable decline from 254,000 the week before. It should be noted, however, that the numbers for the previous week were somewhat skewed due to fraudulent claims reported in Massachusetts.
Meanwhile, though negative, the Philadelphia Fed’s manufacturing index beat expectations, with the index falling to -10.4, better than the forecast drop of -19.8, and showing a significant recovery from April’s disappointing -31.3. This rebound is mainly due to a rebound in new orders, despite the decline in the employment component and the rise in the price indicator. Rising producer prices could discourage the Federal Reserve (Fed) from putting its tightening cycle on hold.
Following the release of the data, GBP/USD fell from around 1.2440. The pair fell sharply towards its weekly low before recovering 1.2400. The dollar continued to rise during the day, as shown by the Dollar Index, which measures the behavior of the dollar against a basket of six currencies; it rises 0.66% to 103,541, waiting to test the 2017 high at 103,820.
Turning to the central bank speakers, Dallas Fed President Lorie Logan said the data this time did not support skipping rate hikes at the next meeting, adding that the Fed has not made the progress that we need on inflation.
For its part, the United Kingdom’s economic agenda included the intervention of the Bank of England (BoE), which commented that the quantitative adjustment (QT) would be gradual, predictable and not an instrument of active policy. They added that it has some economic effects, but they are quite small. The BOE’s Michael Ramsden said: “We probably have several years left for the QT.”
GBP/USD Technical Levels
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
