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GBP / USD rallies to 1.3900 amid notable USD weakness

  • GBP / USD added to its intraday gains and updated daily highs amid a broad-based USD sell-off.
  • Dovish comments from Fed Chairman Jerome Powell and falling US bond yields undercut the dollar.
  • The bulls could still wait for a sustained move past the 1.3900 mark before placing new bets.

The intraday sale of the USD accelerated during the early days of the American session and pushed the pair GBP/USD to new daily highs, closer to 1.3900 in the last hour.

The pair caught some aggressive offers near the 1.3800 level on Wednesday and has now recovered its weekly losses recorded in the last two trading sessions. The British pound found some support following the release of higher than expected UK consumer inflation figures. This, together with the emergence of strong selling around the US dollar, contributed to the strong positive intraday movement of the GBP / USD pair.

The already weaker dollar lost some additional ground following the release of comments prepared by Fed Chairman Jerome Powell for delivery to the House financial services panel. Powell said inflation is likely to remain high in the coming months, but will disappear. This, in turn, forced investors to lower their expectations of a tightening of monetary policy by the Fed ahead of schedule.

Markets now appear to be convinced that the Fed will wait a longer period before reducing its asset purchases or raising interest rates. This was reinforced by a sharp intraday decline in US Treasury yields. Apart from this, a change in risk sentiment put some additional downward pressure on the dollar that did not benefit from a rise. Steeper than expected in the US Producer Price Index.

Data released by the US Bureau of Labor Statistics showed that the US PPI for final demand increased to 7.3% annually in June from 6.6% in May. Further details in the release revealed annual core PPI advanced to 5.6% from 4.8% in May, beating analysts’ estimate of 5.1%.

Now it will be interesting to see if the bulls can capitalize on the momentum or if the GBP / USD continues its struggle to find acceptance above 1.3900. The key focus will continue to be Fed Chairman Jerome Powell’s semi-annual testimony in Congress, which will continue to influence USD price dynamics and provide some boost to GBP / USD.

Technical levels

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