GBP/USD Faces Selling Pressure Amid Fed Policy Tightening ...
GBP/USD Faces Selling Pressure Amid Fed Policy Tightening Prospects
The GBP/USD pair experienced continued selling pressure for the second consecutive day on Tuesday, but managed to stay above the 1.2800 mark during the Asian session.
The US Dollar (USD) gained strength on the back of expectations for further policy tightening by the Federal Reserve (Fed), pushing it to its highest level since July 10. This contributed to the downward pressure on the GBP/USD pair. The US GDP report released last week indicated a robust economy, leaving room for one more 25 bps Fed rate hike either in September or November. Fed Chair Jerome Powell emphasized that the economy still needs to slow and the labor market to weaken for inflation to credibly return to the 2% target.
Adding to the USD's strength was concerns over a potential deeper economic downturn in China due to disappointing PMI prints for July. This boosted the appeal of the safe-haven US Dollar and weighed on the GBP/USD pair. However, optimism regarding further stimulus measures from China provided support to equity markets, limiting the downside for the USD. Moreover, expectations that the Fed will conclude its rapid interest rate hiking cycle amid signs of cooling inflation might cap further gains for the USD.
On the other hand, the British Pound could find support from bets for more interest rate hikes by the Bank of England (BoE). The central bank is widely expected to raise its benchmark interest rate by 25 bps on August 3, bringing it to 5.25%, the highest rate since early 2008. Market participants have also priced in two more BoE rate hikes by the end of the year due to persistent price pressures. This suggests that aggressive bearish bets and expecting further losses in GBP/USD should be approached with caution.
Investors are now looking for fresh impetus from the final UK Manufacturing PMI data. In the US, the ISM Manufacturing PMI and JOLTS Job Openings data will be released later during the early North American session.
Given the current market conditions, our short-term view for the GBP/USD pair is bearish today.
TurnAround Point:1.28650
Our preference
Short positions below 1.28650 with targets at 1.27800 & 1.2760 in extension.
The GBP/USD pair experienced continued selling pressure for the second consecutive day on Tuesday, but managed to stay above the 1.2800 mark during the Asian session.
The US Dollar (USD) gained strength on the back of expectations for further policy tightening by the Federal Reserve (Fed), pushing it to its highest level since July 10. This contributed to the downward pressure on the GBP/USD pair. The US GDP report released last week indicated a robust economy, leaving room for one more 25 bps Fed rate hike either in September or November. Fed Chair Jerome Powell emphasized that the economy still needs to slow and the labor market to weaken for inflation to credibly return to the 2% target.
Adding to the USD's strength was concerns over a potential deeper economic downturn in China due to disappointing PMI prints for July. This boosted the appeal of the safe-haven US Dollar and weighed on the GBP/USD pair. However, optimism regarding further stimulus measures from China provided support to equity markets, limiting the downside for the USD. Moreover, expectations that the Fed will conclude its rapid interest rate hiking cycle amid signs of cooling inflation might cap further gains for the USD.
On the other hand, the British Pound could find support from bets for more interest rate hikes by the Bank of England (BoE). The central bank is widely expected to raise its benchmark interest rate by 25 bps on August 3, bringing it to 5.25%, the highest rate since early 2008. Market participants have also priced in two more BoE rate hikes by the end of the year due to persistent price pressures. This suggests that aggressive bearish bets and expecting further losses in GBP/USD should be approached with caution.
Investors are now looking for fresh impetus from the final UK Manufacturing PMI data. In the US, the ISM Manufacturing PMI and JOLTS Job Openings data will be released later during the early North American session.
Given the current market conditions, our short-term view for the GBP/USD pair is bearish today.
TurnAround Point:1.28650
Our preference
Short positions below 1.28650 with targets at 1.27800 & 1.2760 in extension.
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