- GBP/USD regains traction on Tuesday amid some selling around the dollar for the second day in a row.
- A positive risk tone appears to be a key factor weighing on the safe haven USD.
- The BoE’s gloomy economic outlook could act as a GBP headwind and limit the pair’s gains.
The pair GBP/USD attracts fresh buying on Tuesday and breaks back above the 1.2100 level during the first half of the European session. The pair is currently trading around the 1.2120 area, just a few pips below the previous day’s high.
The US dollar falls for the second day in a row and it turns out to be a key factor lending some support to the GBP/USD pair. The initial market reaction to Friday’s successful monthly US jobs data fades rather quickly amid a positive risk tone, weighing on the safe-haven dollar.
Having said that, speculation that the Fed will maintain its aggressive tightening policy, coupled with a nice rebound in bond yields of the US Treasury, should limit the losses of the dollar. In fact, current market prices point to a 70% chance that the Fed will raise interest rates by 75 basis points at its September meeting.
Expectations were bolstered by Fed Governor Michelle Bowman’s remarks on Saturday that she the US central bank should consider more hikes of 75 basis points in the next meetings to reduce inflation. Therefore, the markets’ attention will remain focused on the latest US CPI consumer inflation figures due to be released on Wednesday.
In the meantime, The Bank of England’s gloomy outlook for the UK economy they could deter investors from opening aggressively bullish positions on the British pound. It should be remembered that the British central bank warned last week that a prolonged recession in the UK would start in the fourth quarter and last for five quarters.
This, in turn, warrants some caution before positioning for any further moves higher in the absence of market-relevant economic releases from either the UK or the US. That said, US bond yields coupled with general market risk sentiment could continue to weigh on the dollar and give GBP/USD some momentum.
GBP/USD technical levels
Source: Fx Street
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