- GBP/USD struggled to capitalize on its early uptick to fresh weekly tops.
- Surging US bond yields revived the USD demand and capped the gains.
- The downside seems limited ahead of the BoE monetary policy decision.
The GBP/USD pair faded an early European session bullish spike and quickly retreated nearly 40-50 pips from weekly tops. The pair was last seen trading with a mild negative bias, around mid-1.3900s.
The pair built on the previous day’s post-FOMC strong positive move of over 100 pips and gained some follow-through traction during the first half of the trading action on Thursday. The uptick, however, lacked bullish conviction and once again faltered near the key 1.4000 psychological mark amid a pickup in the US dollar demand.
The Fed on Wednesday predicted a V-shaped recovery for the US economy and also upgraded its forecast for inflation. The US central bank now predicts the economy to grow by 6.5% in the current year, with inflation exceeding the 2% target. The Fed, however, reiterated that it was in no hurry to raise interest rates at least through 2023.
That said, investors seem convinced that the rapid pace of improvement in economic conditions would warrant faster normalisation of monetary policy. This, coupled with the fact that policymakers made no mention of the recent surge in long-term borrowing cost, nor any effort to combat those movements, kept the US bond yields elevated.
In fact, yields on long-end US government bonds jumped to new cycle highs on Thursday. This, in turn, assisted the greenback to recover a part of the overnight losses and exerted some downward pressure on the GBP/USD pair. Meanwhile, the downside seems limited as investors remain on the sidelines ahead of the BoE policy decision.
Given that no change is expected in interest rates or the pace of stimulus, the market focus will be on the central bank’s assessment of the state of the economy. The BoE is more likely to emphasize the condition for tightening monetary policy, which will play a key role in influencing the British pound and provide some meaningful impetus.
Technical levels to watch
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