GBP/USD stops its fall and recovers 1.2600 amid the UK holiday and the Fed’s hawkish line stance

• GBP/USD is trading at 1.2601, up 0.19%, as the UK summer break and falling US bond yields offer temporary relief to the troubled Pound.
• CME FedWatch Tool indicates almost a 50% chance for a 25 basis point rate hike in November, keeping pressure on GBP/USD.
• A US economic calendar packed with employment data and consumer confidence could introduce fresh volatility and potentially resume the pair’s downtrend.

The British Pound (GBP) halted its free fall against the US dollar (USD) on Monday amid a UK summer bank holiday, which spurred choppy trading between most currency pairs during the overlapping London-New York session . At the time of writing, GBP/USD is trading at 1.2601, up 0.19%.

GBP rises slightly on falling US bond yields; the tight economic calendar in the US will influence the dynamics of currencies

The current week presents a busy economic schedule in the US, unlike in the UK. In the latter, were it not for a speech by Bank of England (BoE) Chief Economist Huw Pill and the release of house prices, the fate of GBP/USD would largely rest with the dynamics of the US dollar.

However, Monday’s share price developments were mainly driven by risk appetite, which weighed on global bond yields, especially in the United States. US bond yields fell across the board, undermining the dollar, as shown by the Dollar Index (DXY), a basket of six currencies that measures their performance against the greenback, which fell 0.12% to 104,060.

However, last week’s speech in Jackson Hole by US Federal Reserve (Fed) Chairman Jerome Powell was seen as hard-line as it stressed the Fed’s commitment to tackling inflation, justifying the rate hike if growth remains above trend, while the labor market remains tight. He added that the US central bank remains data dependent, noting that they would proceed “with caution” when deciding on momentary policy.

Following Powell’s remarks, money market futures are confident the Fed will skip a rate hike in September. However, for November, the story is different, with traders expecting a 25 basis point rate hike, as evidenced by odds close to 50%, as shown by CME’s FedWatch tool.

Against this background, the GBP/USD pair could resume its downtrend based on the latest data. However, the busy US economic schedule could weaken the dollar. On Tuesday, jobs, consumer confidence and housing data could fuel volatility in the pair. Any surprise that warrants further tightening may pave the way for further US dollar strength and British pound (GBP) weakness.

GBP/USD Price Analysis: Technical Perspective

After dipping below the August 3 low at 1.2620, GBP/USD extended its losses below 1.2600, although it is hovering around the latter at time of writing. From a market structure standpoint, the pair has hit successive lower lows, opening the door for a bearish continuation. If the pair makes a daily close above 1.2600, the pair could test last Friday’s high of 1.2654. Otherwise, the pair would resume its downtrend towards the 1.2500 zone, followed by the 200-day moving average (DMA) at 1.2401.