The GBP/USD exchange rate is currently witnessing a downward trend. At the moment of writing, it is trading near 1.2630, attributed to a resurgence in the US Dollar (USD). Consequently, the 100 GBP to USD is at 126.30. This turnaround in the USD’s performance can be linked to the improvement in US Treasury yields. Potentially, that would put an end to its two-day losing streak.
Recovery in US Bond Yields prompts GBP/USD retreat: USD Seeks Stability After Losses
After experiencing a decline of 2.04% in US Treasury yields on Tuesday, the US Dollar (USD) is now in the process of stabilization following its recent setback. Notably, the yield on the 10-year US bond currently stands at 4.13%. This bearish sentiment towards the Federal Reserve’s (Fed) policy outlook was further reinforced by disappointing US economic data on Tuesday. These combined factors are contributing to the ongoing downward pressure on the GBP/USD pair.
Investors Await US Economic Data, Seeking Further Clues on the Fed’s Policy Decision
The recent economic data releases showcased a decline in US Consumer Confidence for August, falling from 114.0 to 106.1, missing the anticipated level of 116.0. Similarly, US JOLTS Job Openings for July decreased to 8.827 million from the previous 9.165 million. This time, it failed to meet the expected rise to 9.465 million.
Bank of England’s Interest Rate Hike Expectations and Cautious Outlook
At the present time, investors anticipate a 25 basis points interest rate hike during the upcoming September monetary policy meeting by the Bank of England (BoE). Moreover, there is an underlying sense of caution among market participants. This stems from concerns that heightened monetary policy tightening could potentially exert a negative impact on the economic prospects of the United Kingdom (UK).
Fed’s Rate Hike Likelihood and Its Impact on the US Dollar
In contrast, the market currently reflects an 11.5% likelihood of a rate hike during the next meeting by the US Federal Reserve (Fed), signalling the potential delay of rate hikes until the September meeting. This prevailing sentiment is contributing to the downward pressure on the US Dollar’s value.
Data-driven Decisions and Anticipation for Upcoming US Economic Data
During the Jackson Hole Symposium, Federal Reserve (Fed) Chairman Jerome Powell emphasized the significance of data-driven decisions regarding interest rate hikes. Consequently, traders of the GBP/USD pair are in a state of anticipation as they await the release of upcoming US economic data.
Focus on US Economic Data and Potential Impact on GBP/USD Swap Rates
There has been an occurring lack of significant data from the UK throughout the week. Therefore, investors have shifted their focus towards gaining deeper insights into the economic outlook of the United States (US). These eagerly anticipated datasets include the US ADP Employment Change for August and the preliminary Gross Domestic Product Annualized for the second quarter (Q2). Both of these critical releases are scheduled to take place later during the North American trading session.
Chart Analysis and Potential Implications for GBP/USD Exchange Rate
Furthermore, price action on the daily GBP/USD chart has brought the validity of a head and shoulders pattern into question. At this point, bears are tentatively breaching the neckline last week. However, a confirmed close below the 1.2548 swing low could potentially trigger a further decline towards the psychological handle of 1.2500 and beyond. The forthcoming core PCE and NFP releases can potentially introduce a change in the current dynamic. The current flow warrants traders’ cautious approach as they navigate these high-impact and potentially volatile risk events.