- GBP/USD trims modest intraday gains and pulls back to the lower end of its daily range.
- A combination of factors is helping the dollar trim intraday losses and putting downward pressure.
- A gloomy economic outlook in the UK supports the prospects for a further short-term depreciation move.
The pair GBP/USD struggles to take advantage of its modest intraday rally to the 1.1760 area and pulls back to the daily low during the early American session. The pair is currently hovering near 1.1700 and remains close to its lowest level since March 2020 touched the previous day.
Intraday optimism in equity markets is running out amid growing concerns about a further global economic downturn. Aside from this, the growing acceptance that the Federal Reserve will continue to tighten monetary policy at a faster pace helps the safe-haven US dollar to regain early lost ground. This turns out to be a key factor attracting selling around the GBP/USD pair to higher levels.
In fact, Fed Chairman Jerome Powell, during his speech at the Jackson Hole Symposium on Friday, signaled that interest rates would stay higher for longer to reduce inflation. Markets were quick to price in a 75 basis point Fed rate hike at the next policy meeting in September. This helps offset a further decline in US Treasury yields and acts as a tailwind for the dollar.
On the other hand, the pound sterling continues to be hurt by the gloomy outlook for the UK economy. It is worth remembering that the Bank of England had predicted earlier this month that the British economy would enter a prolonged recession from the fourth quarter of 2022. This suggests that the path of least resistance for the GBP/USD pair is to the downside and any attempted recovery could be sold.
Next, the US economic calendar, with the publication of the JOLTS job offers and the Conference Board consumer confidence index for the current month. This, coupled with broader market risk sentiment and US bond yields, could weigh on the dollar and provide some lift to the GBP/USD pair. However, attention remains focused on the US employment report (NFP), scheduled for Friday.
Technical levels
Source: Fx Street
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