- GBP/USD moves lower for the second day in a row amid a rebound in dollar demand.
- Aggressive Fed expectations and recession fears continued to act as a tailwind for the USD.
- Mostly upbeat UK PMI data offered sterling support and limited the pair’s losses.
The pair GBP/USD has struggled to take advantage of the previous day’s solid bounce of about 100 pips from the weekly low and has attracted some sales for the second day in a row Thursday. The pair has fallen to the 1.2170-1.2165 zone during the first part of the European session, although it has managed to bounce back a few pips later.
The US dollar was in demand again amid aggressive expectations around the Fed, and received additional support from the worsening global economic outlook, which in turn put downward pressure on the GBP/USD pair. The markets seem to be convinced that the Federal Reserve will maintain its tightening policy to combat persistently high inflation and they have been pricing in a further 75 basis point rate hike at the next FOMC meeting in July. These bets were reaffirmed by Fed Chairman Jerome Powell on Wednesday, stating that continued rate hikes will be appropriate.
Also, investors remain concerned that more aggressive action by major central banks to rein in rising inflation will challenge the global economic recovery. Furthermore, the disappointing release of the Eurozone PMI indices for June increased fears of a possible recession and reinforced the safe-haven status of the dollar. The risk-off monetary flow led to an extension of the recent drop in US Treasury yields, capping dollar gains and extending some support to GBP/USD.
Apart from this, the data UK PMI mostly bullish, helped the pair recover nearly 50 pips from the daily low. However, it remains to be seen whether the GBP/USD pair is able to take advantage of the recovery attempt amid expectations that the Bank of England will opt for a more gradual approach to raising interest rates. This, coupled with the impasse between the UK and the EU over the Northern Ireland protocol to the Brexit deal, favors the bears and supports the prospects for a further short-term move lower in GBP/USD.
Market participants now await the US economic calendar, where the usual weekly initial jobless claims and June PMI data will be released. Additionally, traders will note Fed Chairman Jerome Powell’s second day of testimony before the House Financial Services Committee. This, along with US bond yields and general market risk sentiment, will weigh on the dollar and provide some momentum to the GBP/USD pair.
GBP/USD technical levels
Source: Fx Street
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