- GBP/USD meets with a fresh supply at higher levels amid a modest pickup in the USD demand.
- Mostly upbeat US data, elevated US bond yields, hawkish Fed expectations underpin the USD.
- The UK’s bleak economic outlook acts as a headwind for sterling and favours bearish traders.
The GBP/USD pair struggles to capitalize on its intraday positive move back closer to the weekly high and attracts some sellers near the 1.1865 area on Thursday. The intraday pullback picks up pace during the early North American session and spot prices retreat to the 1.1815-1.1820 region in reaction to the upbeat US macro data.
The Preliminary US GDP report, the second reading, showed that the world's largest economy contracted by 0.6% annualized pace during the second quarter as compared to the 0.9% fall estimated previously. Adding to this, the Weekly Initial Jobless Claims unexpectedly edged lower to 243K in the week ended August 19 from the previous week's downwardly revised print of 245K. Apart from this, elevated US Treasury bond yields, bolstered by hawkish Fed expectations, assists the US dollar to trim a part of its intraday losses to the weekly low. This turns out to be a key factor that exerts some downward pressure on the GBP/USD pair.
The British pound, on the other hand, continues to be underpinned by a bleak outlook for the UK economy. It is worth recalling that the Bank of England earlier this month indicated that a prolonged recession would start in the fourth quarter. This, to a larger extent, overshadows expectations for a 50 bps rate hike by the BoE in September, suggesting that the path of least resistance for the GBP/USD pair is to the downside. Traders, however, might refrain from placing aggressive bearish bets and prefer to wait for a more hawkish message by Fed Chair Jerome Powell's appearance at the Jackson Hole Symposium on Friday.
Powell's comments will be closely scrutinized for clues about the possibility of a supersized 75 bps Fed rate hike move at the September meeting. This, in turn, will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the GBP/USD pair. In the meantime, the US bond yields and the broader market risk sentiment could drive the greenback demand, allowing traders to grab short-term opportunities.
Technical levels to watch
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