- GBP/USD finds fresh supply at higher levels amid a modest pickup in USD demand.
- Mostly upbeat US data, high US bond yields and aggressive Federal Reserve expectations support the dollar.
- The gloomy economic outlook for the UK acts as a headwind for the British pound and favors bearish traders.
The pair GBP/USD struggles to take advantage of its positive intraday move to get closer to the weekly high and attracts some sellers near the 1.1865 area on Thursday. The intraday pullback accelerates during the start of the North American session and spot prices retreat to the 1.1815-1.1820 area in reaction to US macro data.
The preliminary report of US GDP, the second reading, showed that the world’s largest economy contracted 0.6% at an annualized rate during the second quarter, compared to the 0.9% drop previously estimated. In addition, weekly jobless claims unexpectedly fell to 243,000 in the week ending August 19, from a downwardly revised 245,000 in the previous week. Aside from this, elevated US Treasury yields, bolstered by Fed expectations, help the dollar trim some of its intraday losses to weekly lows. This turns out to be a key factor putting some downward pressure on the GBP/USD pair.
On the other hand, the British pound continues to be supported by the gloomy prospects for the British economy. It is worth remembering that the Bank of England indicated earlier this month that a prolonged recession would start in the fourth quarter. This largely casts a shadow over expectations of a 50bp rate hike by the Bank of England in September, suggesting the path of least resistance for GBP/USD is to the downside. However, traders might refrain from making aggressive bearish bets and would rather wait for a more hawkish message from Fed Chairman Jerome Powell at his Jackson Hole Symposium on Friday.
Powell’s comments will be closely scrutinized for clues about the possibility of a 75 basis point Fed rate hike at the September meeting. This, in turn, will play a key role in influencing short-term USD price dynamics and providing a further directional boost to the GBP/USD pair. Meanwhile, US bond yields and broader market risk sentiment could boost demand for the dollar, allowing traders to take advantage of short-term opportunities.
Technical levels to watch
Source: Fx Street
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