- GBP/USD struggled to preserve its modest recovery gains amid the emergence of USD dip-buying.
- Recession fears kept a lid on the optimistic move in the markets and benefitted the safe-haven buck.
- Fed rate hike bets favour the USD bulls and support prospects for additional losses for the major.
The GBP/USD pair surrendered modest intraday recovery gains and dropped to the lower boundary of its daily trading range during the first half of the European session. The pair was last seen hovering around the 1.2115-1.2110 area, just a few pips above a two-year low touched the previous day.
The early optimistic move in the equity markets fizzled out rather quickly amid concerns that a more aggressive move by major central banks to curb inflation would pose challenges to the global economy. This assisted the safe-haven US dollar to trim a part of its intraday losses, which, in turn, was seen as a key factor that attracted fresh selling around the GBP/USD pair.
The greenback further drew support from firming expectations the Fed would raise interest rates at a faster pace than expected to cool price pressures. The bets were reaffirmed by the latest US consumer inflation figures, which surged to over a four-decade high in May. In fact, Fed funds futures indicate the possibility of at least one jumbo 75 bps rate hike by the September meeting.
Moreover, investors now expect the officials to raise rates to nearly 4% by next spring, up from last month’s expected peak of around 3%. This should continue to act as a tailwind for the US bond yields and the USD. The fundamental backdrop supports prospects for a further decline for the GBP/USD pair, though traders might prefer to wait ahead of the key central bank event risk.
The Fed is scheduled to announce the outcome of a two-day monetary policy meeting on Wednesday. This will be followed by the Bank of England decision on Thursday, which will help determine the next leg of a directional move for the GBP/USD pair. In the meantime, traders might take cues from the broader market risk sentiment to grab short-term opportunities on Tuesday.
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
EUR/USD extends recovery beyond 1.0400 amid Wall Street's turnaround
EUR/USD extends its recovery beyond 1.0400, helped by the better performance of Wall Street and softer-than-anticipated United States PCE inflation. Profit-taking ahead of the winter holidays also takes its toll.
GBP/USD nears 1.2600 on renewed USD weakness
GBP/USD extends its rebound from multi-month lows and approaches 1.2600. The US Dollar stays on the back foot after softer-than-expected PCE inflation data, helping the pair edge higher. Nevertheless, GBP/USD remains on track to end the week in negative territory.
Gold rises above $2,620 as US yields edge lower
Gold extends its daily rebound and trades above $2,620 on Friday. The benchmark 10-year US Treasury bond yield declines toward 4.5% following the PCE inflation data for November, helping XAU/USD stretch higher in the American session.
Bitcoin crashes to $96,000, altcoins bleed: Top trades for sidelined buyers
Bitcoin (BTC) slipped under the $100,000 milestone and touched the $96,000 level briefly on Friday, a sharp decline that has also hit hard prices of other altcoins and particularly meme coins.
Bank of England stays on hold, but a dovish front is building
Bank of England rates were maintained at 4.75% today, in line with expectations. However, the 6-3 vote split sent a moderately dovish signal to markets, prompting some dovish repricing and a weaker pound. We remain more dovish than market pricing for 2025.
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.