- GBP/USD gains traction for the second day in a row and rises to a nearly two-week high.
- The positive tone in risk appetite and the low yield of US bonds weigh on the USD.
- Disappointing UK macro data adds to recession fears and could cap the pair’s gains.
The pair GBP/USD captures new purchases near the 1.1600 level on Monday and rises to a nearly two-week high during the first half of the European session. The pair is currently trading around the 1.1700 round level and looks to build on its recent rebound from the lowest level since 1985played last week.
The US dollar continues its sharp decline from two-decade highs and remains under intense selling pressure on the first day of a new week. In fact, the dollar index, which measures the evolution of the greenback against a basket of currencies, plunges into a new monthly low. This turns out to be a key factor pushing GBP/USD higher for the second day in a row.
Given the markets have already priced in a 75 basis point rate hike at the next Federal Open Market Committee meeting (FOMC) of September 20 and 21, it is observed a generally positive tone in stock markets, weighing on the dollar as a safe haven. Apart from this, the current corrective decline in the dollar lacks an obvious fundamental catalyst and is more likely to remain limited amid elevated US Treasury yields.
Also, worsening outlook for the UK economy could help curb the pair’s gains GBP/USD. UK macroeconomic data, released on Monday, was mostly disappointing. The UK Office for National Statistics reported that the economy grew 0.2% in Julybelow estimates of 0.5% growth.
On the other hand, total UK manufacturing and industrial production missed expectations, reaching 0.1% and -0.3% MoM in July, respectively. This warrants caution before placing additional gains on the pair. However, GBP/USD has rallied nearly 300 points from the 1.1400 zone, the 35-year low set last Wednesday, and remains at the mercy of the dollar’s price dynamics.
Investors could also refrain from opening aggressive positions and would rather stay on the sidelines ahead of US consumer inflation numbers due out Tuesday. Traders will continue to keep an eye on this week’s macroeconomic releases from the UK, including Wednesday’s crucial CPI report. This, in turn, will play a key role in influencing the GBP/USD pair and help determine the next directional move.
GBP/USD technical levels
Source: Fx Street
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