- GBP/USD rises to a one-week high as the UK withdraws its plan to scrap the highest tax rate.
- The gloomy economic outlook for the UK acts as a headwind for the British pound and limits the pair’s rise.
- Expectations of aggressive Fed rate hikes continue to support the dollar and trigger intraday selling around the pair.
The pair GBP/USD an intraday bullish rally fades and pulls back almost 100 pips from the 1.1280 area, one-week highs hit earlier this Monday. At time of writing, the pair is hovering around the 1.1200 region.
The pound sterling recovers after the UK Chancellor of the Exchequer, Kwasi Kwarteng will confirm that his government will not go ahead with the plan to eliminate the 45% income tax rate.. This, in turn, helps ease concerns over bulging UK government debt and allows the GBP/USD pair to build on last week’s recovery move from an all-time low.
Nevertheless, positive momentum runs out near 1.1280 area amid gloomy outlook for UK economy. This, coupled with the underlying bullish sentiment around the US dollar, is helping to cap GBP/USD. This, in turn, warrants some caution before positioning for any further intraday moves higher.
The markets seem convinced that the Federal Reserve will continue its aggressive cycle of rate hikes to curb inflation and have been eyeing another 75 basis point hike in November. This continues to give some support to the dollar, although a combination of factors is preventing traders from opening aggressive bullish positions.
US Treasury yields are continuing their recent pullback from multi-year highs hit last week. Also, the signs of stability in the financial marketsas evidenced by the positive tone of the US stock markets, weigh on the US dollar as a safe haven, at least for the time being.
Therefore, it will be prudent to wait for strong continuation buying before confirming that GBP/USD has formed a short-term bottom. No major market data will be released in the UK, while the ISM Manufacturing PMI will be released on the US economic docket. This, along with US bond yields and broader risk sentiment, could weigh on the dollar.
GBP/USD technical levels
Source: Fx Street
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