- GBP/USD bears occupy driver’s seat at three-week low despite latest inaction.
- Indecision between BoE’s 0.25% and 0.50% rate hike keeps Cable traders on sidelines of late.
- Fears of UK recession, bullish bias about US Dollar and firmer yields weigh on Pound Sterling price.
- US ISM Services PMI, clues for Friday’s NFP also eyed for clear directions.
GBP/USD languishes near a three-week low marked the previous day, stays defensive near 1.2710 by the press time as it portrays the market’s anxiety ahead of multiple US data and the Bank of England (BoE) monetary policy announcements scheduled for release on Thursday.
While the market’s consolidation after a volatile day and cautious mood ahead of the top-tier catalysts prod the Pound Sterling sellers at a multi-day low, fears that the BoE won’t be able to defend the British Pound (GBP) weigh on prices of late. That said, the “Old Lady”, as the BoE is informally known, is expected to announce 25 basis points (bps) increase in its benchmark interest rates.
However, major attention will be given to the BoE statements and Governor Andrew Bailey’s speech for forecasting the future of the hawkish cycle and the Cable pair. Should the BoE officials stay hawkish despite the latest easing in British inflation, the GBP/USD may recover from the multi-day low.
Apart from the BoE concerns, the inaction of the US Dollar Index (DXY) also prods the GBP/USD bears. That said, DXY cheered the risk-off mood and benefited from the strong US Treasury bond yields on Wednesday before retreating from a nine-week-old resistance line to 102.60 at the latest. Also likely to have favored the US Dollar Index bulls were the strong US ADP Employment Change numbers for July.
Furthermore, the US Treasury Department raised possibilities of testing demand for the US bonds after the rating cut by fueling the weekly longer-term debt issuance, which in turn propelled the bond coupons and the US Dollar on Wednesday.
On the contrary, US Treasury Secretary Janet Yellen and White House (WH) Economic Adviser Jared Bernstein defended the credibility of the US Treasury bonds late Wednesday. The policymakers also vouched for the US economic strength after Fitch Ratings’ cited such concerns as the catalysts for their downgrade to the US government credit ratings. The same could be linked to the latest stabilization in the market. With this, US 10-year Treasury bond yields rose to the highest level since November 2022 whereas the Wall Street benchmarks closed in the red. That said, the S&P500 Futures remain sidelined at a two-week low after declining in the last two consecutive days.
Looking ahead, the BoE updates will be important for the GBP/USD trades to watch ahead of the multiple US data surrounding employment and activity. Among them, US ISM Services PMI, Factory Orders, Weekly Initial Jobless Claims and quarterly readings of Nonfarm Productivity and Unit Labor Costs gain major attention.
Also read: Bank of England Preview: Sell Sterling? Why Bailey may break the Pound, even with a bigger hike
Technical analysis
A daily closing below a five-month-old rising support line and the 50-DMA, around 1.2740 and 1.2725 in that order, keeps the GBP/USD pair sellers directed towards late June’s bottom of around 1.2590. However, May’s peak surrounding 1.2680 will check the Cable bears.