- GBP/USD attracted dip-buying on Friday and reversed a dip back closer to the weekly low.
- Retreating US bond yields kept a lid on the USD gains and acted as a tailwind for the major.
- Rising bets for a 50 bps Fed rate hike in March should underpin the USD and cap the upside.
The GBP/USD pair recovered its early lost ground and was last seen trading in the neutral territory, around mid-1.3500s.
The pair witnessed some selling during the first half of the trading on Friday and dropped to the lower end of its weekly trading range amid a strong follow-through US dollar buying. Expectations that the Fed will tighten its monetary policy at a faster pace to combat high inflation continued acting as a tailwind for the greenback and exerted pressure on the GBP/USD pair.
The red-hot US consumer inflation figures released on Thursday reinforced market bets for a 50 bps Fed rate hike move in March. St. Louis Fed President James Bullard added to market speculations and called for 100 bps rate hikes over the next three FOMC policy meetings. This, along with a generally weaker tone around the equity markets, underpinned the safe-haven greenback.
The GBP/USD pair had a rather muted reaction to the release of mixed UK macro data, which showed that the economy expanded by 1% during the fourth quarter of 2021 as against 1.1% anticipated. Separately, the UK Industrial/Manufacturing Production and a larger than estimated traded deficit did little to impress bullish traders or provide any impetus to the GBP/USD pair.
That said, retreating US Treasury bond yields capped gains for the greenback and once again assisted the GBP/USD pair to attract some buying ahead of the 1.3500 psychological mark. The said handle should act as a pivotal point for short-term traders, which if broken decisively will set the stage for an extension of the previous day's sharp pullback from a three-week high.
Market participants now look forward to the US economic docket, featuring the release of the Prelim University of Michigan US Consumer Sentiment Index. This, along with the US bond yields and the broader market risk sentiment, will influence the USD price dynamics and produce some short-term trading opportunities around the GBP/USD pair.
Technical levels to watch
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
Japanese Yen rises following Tokyo CPI inflation
The Japanese Yen (JPY) gains ground against the US Dollar (USD) on Friday. The USD/JPY pair pulls back from its recent gains as the Japanese Yen (JPY) strengthens following the release of Tokyo Consumer Price Index (CPI) inflation data.
AUD/USD weakens to near 0.6200 amid thin trading
The AUD/USD pair remains on the defensive around 0.6215 during the early Asian session on Friday. The incoming Donald Trump administration is expected to boost growth and lift inflation, supporting the US Dollar (USD). The markets are likely to be quiet ahead of next week’s New Year holiday.
Gold price remains subdued despite increased geopolitical tensions
Gold edges lower amid thin trading following the Christmas holiday, trading near $2,630 during the Asian session on Friday. However, the safe-haven asset could find upward support as markets anticipate signals regarding the US economy under the incoming Trump administration and the Fed’s interest rate outlook for 2025.
Floki DAO floats liquidity provisioning for a Floki ETP in Europe
Floki DAO — the organization that manages the memecoin Floki — has proposed allocating a portion of its treasury to an asset manager in a bid to launch an exchange-traded product (ETP) in Europe, allowing institutional investors to gain exposure to the memecoin.
2025 outlook: What is next for developed economies and currencies?
As the door closes in 2024, and while the year feels like it has passed in the blink of an eye, a lot has happened. If I had to summarise it all in four words, it would be: ‘a year of surprises’.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.