GBP/USD nosedives towards 1.1810s on risk-off and buoyant US dollar

The GBP/USD plunges in the North American session due to sentiment turning sour as traders reassess their reading of recent Fed hawkish commentary. Reflecting the previously mentioned, US bond Treasury yields are rising, the greenback is on its path to closing at a six-week high, and global equities are tumbling.

The GBP/USD is trading at 1.1812, after hitting a daily high at 1.1935 before plummeting towards the daily lows at 1.1791, though it remains trading below its opening price.

As previously mentioned, the British pound extends its losses, while the US Dollar Index, a gauge of the buck’s value vs. its counterparts, rallies 0.67%, up at 108.211. At the same time, the US 10-year bond yield climbs ten bps to 2.994%.

The lack of US economic data released on Friday keeps market players digesting Fed commentary. July’s FOMC monetary policy minutes were initially misread by traders, which sent US equities rallying sharply, even though Fed officials reiterated on several occasions that “inflation is too high” and that it’s premature to declare “victory.”

Richmond’s Fed Thomas Barkin said that reduction of the balance sheet should add to tighter financial conditions. He commented that data on the economy has been robust, and the job market seems healthy as it does core retail sales and industrial production.

On Thursday, San Francisco’s Fed President Daly said that a 50 or 75 bps would be appropriate in the next meeting while adding, “I really think of the raise-and-hold strategy as one that has historically paid off for us,” pushing back against rate cuts in 2023. Meanwhile, Kansas Citi Fed George said that although July CPI data was “encouraging,” the case for further tightening remains strong.

Later the St. Louis Fed James Bullard said the leans toward a 75 bps increase next month and stressed that it’s too soon to say inflation has peaked; while Minnesota’s Fed Neil Kashkari said that the Fed is committed to getting inflation under control, even though he’s unsure that the Fed can lower inflation without triggering a recession.

On the UK side, economic data was mixed. UK Retail sales surprised to the upside, up in July by 0.3% MoM, contrary to expectations for a 0.2% drop. However, over three months to July, sales fell 1.2% and, annually, dropped 3.4%.

Earlier, the GfK Consumer confidence printed a dismal reading for July at -44 vs. estimations of -42, as UK’s citizens have to cope living with household energy bills twice as higher than the last year, which will increase in October.

What to watch

Next week, the UK calendar will unveil August’s S&P Global/CIPS PMIs. On the US front, the economic docket will feature S&P Global PMIs for August, claims for unemployment, the Fed Jackson Hole Economic Symposium, where Fed Chair Jerome Powell will speak, and the Fed’s favorite gauge of inflation, PCE for July,

GBP/USD Key Technical Levels