- GBP/USD attracts some sellers on Monday and is pressured by modest USD strength.
- Bets for more interest rate hikes by the Fed help revive demand for the Greenback.
- The BoE’s less hawkish forward guidance also contributes to the mildly offered tone.
The GBP/USD pair extends Friday's late pullback from the 1.2800 neighbourhood and edges lower during the Asian session on Monday, though lacks follow-through selling. Spot prices currently trade around the 1.2735 region, representing the 50-day Simple Moving Average (SMA) and manage to hold comfortably above a five-week low touched last Thursday.
As investors look past Friday's mixed US monthly employment details, the prospects for further policy tightening by the Federal Reserve (Fed) assist the US Dollar (USD) to attract some buying and act as a headwind for the GBP/USD pair. It is worth recalling that the headline US NFP missed consensus estimates and showed that the economy added 187K jobs in July. Adding to this, the readings for May and June were revised down, suggesting that demand for workers was slowing. That said, solid wage growth and a downtick in the unemployment rate pointed to continued tightness in the labour market. This keeps the door for one more 25 bps rate hike by the Federal Reserve (Fed) in September or November wide open and lends some support to the buck.
The British Pound (GBP), on the other hand, is undermined by the Bank of England's (BoE) less hawkish forward guidance that rates were close to a peak. In fact, the UK central bank, after raising its key interest rate by 25 bps to a 15-year peak level of 5.25% last Thursday, stated that the current monetary policy stance is "restrictive". This further contributes to a mildly offered tone surrounding the GBP/USD pair. The BoE, however, pushed back against market expectations for interest rate cuts in 2024 and warned that rates would stay higher for longer to bring inflation down to target. This, in turn, holds back traders from placing aggressive bearish bets around the major and warrants some caution before positioning for the resumption of a three-week-old downtrend.
Market participants might also prefer to move to the sidelines ahead of this week's release of the latest US consumer inflation figures on Thursday and a slew of important UK macro data, including the monthly GDP print on Friday. In the meantime, speeches by influential FOMC members on Monday might influence the USD price dynamics and provide some impetus to the GBP/USD pair in the absence of any relevant market-moving economic releases. Nevertheless, the aforementioned mixed fundamental backdrop suggests that strong follow-through selling is needed to support prospects for a further intraday depreciating move.
Technical levels to watch
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