- GBP/USD remains confined in a narrow trading band through the Asian session on Monday.
- Bets for more Fed rate hikes help revive the USD demand and cap the upside for the major.
- The BoE’s aggressive tightening fuel recession fears and also act as a headwind for the GBP.
The GBP/USD pair struggles to gain any meaningful traction on the first day of a new week and oscillates in a narrow trading band, around the 1.2700 mark through the Asian session. Spot prices, meanwhile, remain below Friday's swing high and so far, have been struggling to make it through the 200-hour Simple Moving Average (SMA).
Expectations the Federal Reserve (Fed) will continue to tighten its monetary policy assist the US Dollar (USD) to attract some buyers on Monday, which, in turn, is seen as a key factor acting as a headwind for the GBP/USD pair. Data released from the US on Friday showed that the PCE Price Index remains well above the Fed's 2% target and supports prospects for further policy tightening. In fact, the current market pricing indicates a nearly 85% chance of a 25 bps lift-off at the next FOMC policy meeting in July.
Fed Chair Jerome Powell reiterated last week that borrowing costs may still need to rise as much as 50 bps by the end of this year. This, in turn, remains supportive of elevated US Treasury bond yields, which helps revive the USD demand and fails to assist the GBP/USD pair to capitalize on Friday's solid rebound from sub-1.2600 levels. That said, a generally positive tone around the equity markets keeps a lid on any further gains for the safe-haven Greenback and should help limit the downside for the major.
Traders might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of key US macro data scheduled at the beginning of a new month. A rather busy week kicks off with the release of the US ISM Manufacturing PMI, due later during the early North American session. The focus, however, will remain glued to the FOMC meeting minutes on Wednesday, which will be followed by the closely-watched US monthly jobs report - popularly known as NFP on Friday - and drive the USD.
In the meantime, growing concerns that the UK economy is heading for recession, especially after a surprise 50 bps rate hike by the Bank of England (BoE) in June, might keep a lid on any meaningful upside for the GBP/USD pair. This makes it prudent to wait for strong follow-through buying before confirming that the recent pullback from a 14-month peak has run its course and positioning for a further appreciating move.
Technical levels to watch
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