- GBP/USD gains traction for the second day in a row and recovers from lows in more than a month.
- Less aggressive signals from Powell and declining US bond yields undermine the USD.
- Expectations that the Bank of England is nearing the end of its current rate hike cycle limit sterling’s gains.
The GBP/USD pair takes advantage of the overnight bounce from near the 200-day SMA support and gains traction for the second day in a row on Wednesday. The pair hits a fresh two-day high at 1.2104 early in the European session, with bulls trying to consistently extend momentum beyond the 1.2100 zone.
The US dollar comes under fresh selling pressure amid a modest drop in US Treasury yields and turns out to be a key factor acting as a tailwind for GBP/USD . Fed Chairman Jerome Powell offered no further hawkish signals on Tuesday, reiterating that disinflation was underway. This, in turn, raises hopes that interest rates will not rise much further, which in turn puts some downward pressure on bond yields and weakens the dollar.
That being said, a generally weaker risk tone helps limit losses for the safe-haven dollar and caps any further upside for GBP/USD, at least for now. Market sentiment remains fragile amid concerns about economic headwinds stemming from the continued rise in borrowing costs, the latest COVID-19 outbreak in China and the protracted war between Russia and Ukraine. Apart from this, fears of worsening US-China relations dampen investor appetite for riskier assets.
Apart from this, a dovish assessment of last week’s Bank of England (BoE) decision also helps to constrain GBP/USD. In fact, the UK central bank removed the phrase that it would “respond vigorously, as necessary” from its statement. In addition, BoE Governor Andrew Bailey has stated that inflation will fall more rapidly during the second half of 2023. This raises speculation that the current rate hike cycle may be coming to an end and could stop bulls from moving forward. time to make aggressive bets.
No relevant economic data will be published on Wednesday, neither in the United Kingdom nor in the United States, so the GBP/USD pair will be at the mercy of the dynamics of the dollar prices. Therefore, traders are looking forward to speeches from influential FOMC members. This, along with US bond yields and broader risk sentiment, should boost demand for the USD and give GBP/USD some momentum. Next, attention will turn to hearings on the Bank of England Monetary Policy Report on Thursday.
GBP/USD Technical Levels
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
