GBP/USD hovering down at 1.3950 as US 10-year yields trade above 3%

The GBP/USD is trading at around 1.3947 down 0.22% on Wednesday in the early North American session. 

The GBP/USD bulls are having a hard time as the negative sentiment on the British pound persists ahead of the UK Gross Domestic Product on Friday and the long US dollar trade remains the main theme among foreign exchange investors as US Treasury yields break new highs. 

The GBP/USD is hovering near daily lows near the 1.3940 level as it traded in the 1.3930-1.3970 range in the early European session. In Asia, bulls brought the pair close to the 1.4000 handle as the US dollar was having a pullback but it was short-lived and the cable now looks vulnerable to further downside moves. 

The economic calendar is very light on Wednesday and the pair is driven by the sentiment on the US dollar. The greenback is on a bull run as the 10-year Treasury yields broke above 3.000% mark and trading as high as 3.034% on Tuesday which are levels not seen since 2014.  

Friday will be decisive for the GBP as the UK Gross Domestic Product is the last key macroeconomic data before the next Bank of England meeting on May 10. The first quarter was weak with lower wage growth, inflation, retail sales. The weather-related issues didn’t help either as production and construction activities were slowed down. 

It is quite the perfect storm for the GBP/USD bears which is driven by a weakening GBP and a strengthening USD. Last week key macroeconomic data in the United Kingdom came below expectations. Market participants sold GBP in the light of disappointing average earnings (wage growth), retail sales and consumer price index data (inflation). What made traders lose hope of a May rate hike were the dovish comments of Bank of England Governor Mark Carney, last Thursday, who said that rate hikes might be delayed due to Brexit-related issues. What further eroded the negative sentiment on the GBP were comments by Michael Saunders of the Bank of England, who said last Friday: “the UK rates probably need to move over time to something more neutral, but not too quickly.” As, Saunders, a hawkish member of the Monetary Policy Committee, made dovish comments, investors became even more dubious that a rate hike would be on the table on May 10, the next Bank of England rate decision date.

GBP/USD 4-hour chart

The trend is bearish. Support is seen at 1.3889 swing low and at 1.3781 swing low while resistance is seen at the 1.4000 and 1.4100 figure