- GBP/USD makes a good rebound from the historical low reached this Monday.
- Speculations on the intervention of the Bank of England offer support to the British pound.
- Modest dollar profit-taking from all-time highs adds to the momentum.
The GBP/USD manages to recover a significant part of the ground lost hours ago and reached 1.0799, before returning towards the 1.0700 area. However, the recovery attempt for now seems to have run out of steam and downside risks remain.
Speculation that the Bank of England will have to intervene to stabilize the national currency helped sterling halt its free fall that followed the new British government’s announcements of tax cuts on Friday. In addition, the bad climate in the equity markets also weighs on the British currency. UK bonds also tumble.
A take profit with respect to the dollarfrom a new two-decade high, also helped GBP/USD rebound. The historical minimum was reached in the area of ​​1.0330 and from there it rose over 400 pips. Volatility is estimated to remain high.
That said, the more aggressive stance taken by the Fed, coupled with a further rise in US Treasury yields and the prevailing risk-aversion mood, should help limit any significant corrective decline in the USD. In fact, the Fed last week carried out another large-scale interest rate hike, signaling that it will likely make more hikes at its upcoming meetings to combat stubbornly high inflation.
This, in turn, pushes the yield on the rate-sensitive 2-year US government bond to a 15-year high and the benchmark 10-year Treasury note to its highest level in 11 years. Meanwhile, rapidly rising funding costs, coupled with the risk of a further escalation of the conflict between Russia and Ukraine, have fueled concerns of a deeper global economic downturn and weighed on investor sentiment. The mentioned context is negative for the GBP/USD.
Technical levels
Source: Fx Street
With 6 years of experience, I bring to the table captivating and informative writing in the world news category. My expertise covers a range of industries, including tourism, technology, forex and stocks. From brief social media posts to in-depth articles, I am dedicated to creating compelling content for various platforms.
