- GBP/USD trades lower due to the improvement in US bond yields.
- US Dollar (USD) treads water to recover two-day losses.
- Investors await US economic data, seeking further clues on the Fed’s policy decision.
GBP/USD trades lower around 1.2630 on the back of a recovery in the US Dollar (USD), which could be attributed to the improvement in US Treasury yields snapping a two-day losing streak. The US Dollar Index (DXY), which measures the performance of the Greenback against the six other major currencies, trades higher around 103.60 at the time of writing during the Asian session.
The US Dollar (USD) is treading waters to retrace from the two-day losses. US Treasury yields fell by 2.04% on Tuesday, which exerted downward pressure on the buck. Currently, the yield on the 10-year US bond trades at 4.13%. Moreover, the disappointing economic data from the United States (US) on Tuesday further solidified the dovish sentiment regarding the Fed’s policy stance. This has contributed to an increase in downward pressure on the GBP/USD pair.
As said, US Consumer Confidence (Aug) fell to 106.1 from 114.0 prior, falling short of the expected 116.0. US JOLTS Job Openings showed a reduction in July, reporting 8.827 million against the previous 9.165 million. This contrasted with the expected rise to 9.465 million.
Investors anticipate a 25 basis points (bps) interest rate hike at the upcoming September’s monetary policy meeting by the Bank of England (BoE). However, there appears to be a sense of caution among investors, as the prospect of additional tightening of monetary policy could potentially have a negative impact on the economic outlook of the United Kingdom (UK).
On the other hand, the CME's FedWatch Tool currently indicates that the market is pricing an 11.5% likelihood of a rate hike during the upcoming meeting by the US Federal Reserve (Fed). Investors are foreseeing that the Fed will likely delay any rate hikes until its September meeting. This prevailing sentiment is leading to a downward pressure on the value of the Greenback.
Furthermore, at the Jackson Hole Symposium, US Federal Reserve (Fed) Chairman Jerome Powell emphasized that the Fed's decision regarding the next interest rate hike will be data-driven. Consequently, traders of the GBP/USD pair are currently in a state of anticipation as they await the release of upcoming US economic data.
With a lack of significant data from the UK during the week, investors’ focus has shifted towards gaining a clearer insight into the economic outlook of the United States (US). These upcoming datasets include the US ADP Employment Change for August and the preliminary Gross Domestic Product Annualized for the second quarter (Q2), both of which are scheduled to be released later in the North American trading session.
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