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GBP / USD recovers intraday losses, lateralized above 1.3800 ahead of FOMC Minutes

  • GBP / USD witnessed some intraday selling for the second consecutive session on Wednesday.
  • The decline was sponsored by a cross weakness derived from the EUR / GBP.
  • Falling US bond yields undercut the dollar and helped limit losses before the FOMV Minutes.

The pair GBP/USD it rallied around 40-50 pips from weekly lows, although it lacked a strong follow-up buy and was last seen trading in neutral territory, above 1.3800.

The pair extended the previous day’s sharp retracement drop from lows of more than two weeks and witnessed some follow-up selling during the first half of trading action on Wednesday. The decline lacked an obvious catalyst and could only be attributed to cross-over weakness stemming from the ongoing rally in the EUR / GBP pair.

The GBP / USD pair fell to four-day lows, although it managed to find decent support near a short-term rising trend line, around the 1.3770 region. The continuing decline in US Treasury yields dragged the US dollar to two-week lows. This, in turn, was seen as a key factor that helped limit any further losses for the pair, at least for now.

However, the rise remained limited, as investors now seemed reluctant to place aggressive bets ahead of Wednesday’s release of the minutes of the FOMC meeting. Investors have been pricing in the prospects for a Fed rate hike earlier than expected amid the optimistic US economic outlook, thanks to the impressive pace of coronavirus vaccines.

This, coupled with US President Joe Biden’s spending plan, has fueled speculation about a spike in US inflation and raised doubts that the Fed will keep interest rates ultra-low for a longer period. Therefore, the Minutes will be closely scrutinized for clues to any discussion of conditions to begin to tighten.

Aside from this, Fed Chairman Jerome Powell’s speech on Thursday will now play a key role in influencing short-term USD price dynamics. This would help investors determine the next leg of a directional move for GBP / USD.

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