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GBP / USD struggles to stay higher against dollar strength amid Powell testimony, mixed US data

  • GBP / USD has been falling about 40 pips from the highs as the dollar gains ground.
  • Most of the worse-than-expected US data and Powell-derived uncertainty weigh on sentiment.
  • UK covid figures are eagerly awaited after Wednesday’s jump.

The GBP/USD it has dropped to around 1.3850, almost unchanged on the day. The safe-haven US dollar has been gaining traction as part of a broader mood of risk aversion stemming from several factors.

Federal Reserve Chairman Jerome Powell has told senators that he is not sure how far the Labor Force Participation Rate (LFPR) can go. Fewer Americans are participating in the workforce after the pandemic broke out. Furthermore, Powell said that the current rise in inflation is unique and that the Fed has a challenging task.

The Fed chairman’s uncertainty adds to the worried market mood, supporting the dollar. On Wednesday, Powell stressed that it is still too early to reduce bond purchases, causing the dollar to fall.

Figures coming from the central bank earlier on Wednesday were mixed. The Philadelphia Fed manufacturing index disappointed the projections with 21.9 points, while the Empire State in parallel beat the forecasts with 43 points.

Unemployment claims in the United States fell short of estimates at 360,000 based on data released for the week ending July 9. Another disappointment came from industrial production, which rose 0.4% in June, disappointing expectations as well.

The pound has completely reduced gains resulting from aggressive comments from Bank of England member Michael Saunders. Saunders urged shortening the BOE’s bond buying program and eventually raising interest rates, in contrast to Governor Andrew Bailey. His comments came after the UK reported a 7.3% year-on-year rise in wages in May, which could turn into inflationary pressures down the road.

Looking ahead, additional headlines are expected from Fed Chairman Powell in the US, while COVID-19 statistics from the UK are also expected. Britain reported more than 42,000 infections on Wednesday, showing a rapid increase. On the other hand, hospitalizations and mortalities are progressing at a modest rate. The UK is ready to drop almost all covid restrictions on Monday.

GBP / USD has reached a daily low of 1.3813 and reached a high of 1.3898. These are the technical levels to follow:

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