- GBP/USD staged a nice intraday rebound from the weekly low hit earlier this Wednesday.
- A positive risk tone and disappointing ADP report weighed on the safe haven USD and extended some support.
- Upside potential seems limited as focus remains glued to the crucial FOMC policy decision.
USD fell in reaction to the US ADP report and pushed the pair higher GBP/USD to a fresh daily high around the 1.2535 region during the early American session.
The pair quickly reversed an intraday drop to the 1.2465 area and is now up almost 70 pips from the weekly low hit this Wednesday amid modest US dollar weakness. With the Federal Reserve’s anticipated move to raise interest rates already priced in, indications of a positive open in US equity markets undermined the safe-haven dollar.
The USD added to its intraday losses after data released by Automatic Data Processing (ADP) showed that US private sector employers added 247,000 new jobs in April. This failed consensus estimate pointing to the 395,000 rise, though was largely offset by an upward revision of the previous month’s reading to 479,000 from the previously reported 455,000.
Aside from this, the prospect of more aggressive policy tightening should act as a tailwind for the dollar and keep any further GBP/USD gains at bay. Investors seem convinced that the Fed would tighten monetary policy at a faster pace to curb runaway inflation. Therefore, attention will remain on the outcome of a two-day FOMC meeting.
The Fed is widely expected to raise benchmark interest rates by 50 bps and lay out plans to start whittling down its massive nearly $9 trillion balance sheet. Investors, however, will watch Fed Chairman Jerome Powell’s comments to see if the US central bank is ready to continue its policy tightening and raise interest rates further, even if the economy weakens.
This will play a key role in influencing short-term USD price dynamics and provide a significant boost to the GBP/USD pair ahead of the Bank of England’s monetary policy meeting on Thursday. The mix of key central bank event risks warrants some caution for aggressive traders and before positioning for firm near-term direction.
Technical levels
Source: Fx Street
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