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GBP/USD surrendered a large chunk of its intraday gains and neutralized below the 1.2100 mark.
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The BoE’s bleak economic outlook continues to weigh on the GBP and act as a headwind for the pair.
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Investors now look forward to the US CPI and the UK GDP this week for a fresh directional impetus.
The GBP/USD pair struggles to preserve its modest intraday gains and retreats nearly 50 pips from the intraday peak touched during the early European session. The pair is currently trading just a few pips above the daily low, around the 1.2075-1.2070 region.
The Bank of England offered a dovish outlook last week, which continues to act as a headwind for the British pound and has become a key factor in capping GBP/USD. Indeed, the UK central bank has warned that a prolonged UK recession will begin in the fourth quarter and has indicated that monetary policy is not on the pre-determined path. This, in turn, suggests that the BoE is more likely to slow down the tightening cycle.
The US dollar, on the other hand, struggled to capitalize on a strong move after Friday’s NFP as US Treasury bond yields hit a new leg lower. Apart from this, a generally positive tone around the equity markets further weakens safe havens and lends some support to the GBP/USD pair. That said, the prospects for more aggressive policy tightening by the Fed will act as a tailwind for US bond yields and favor USD bulls.
The upbeat US monthly jobs report released on Friday showed that the economy added 528K jobs in July, smashing consensus estimates by a big margin. Additional details revealed that Average Hourly Earnings rose 0.5% MoM in July and suggested a further rise in inflationary pressures, lifting bets for a 75 bps Fed rate hike move at the next policy meeting in September.
Hence, the market focus now shifts to the release of the latest US consumer inflation figures, due on Wednesday. The data would influence Fed rate hike expectations and play a key role in driving the near-term USD demand. Apart from this, investors will take cues from the prelim UK Q2 GDP report on Friday to determine the next leg of a directional move for the GBP/USD pair.
In the meantime, USD price dynamics would play a key role in influencing spot prices on Monday amid absent relevant market moving data, either from the UK or the US. This, in turn, suggests that any meaningful downfall might continue to find decent support near the 1.2000 psychological mark, which should now act as a key pivotal point for short-term traders.
Technical levels to watch
GBP/USD
