GBP/USD fails to hold above 1.3100 and reverses, looks at daily lows

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  • GBP/USD flat for the day, off highs pointing to the downside.
  • US dollar moves sideways, strengthens during the American session.

The GBP/USD pair peaked earlier on Tuesday at 1.3131, the highest level in two days but it then pulled back. It was unable to remain above 1.3100 and during the American session dropped further amid a recovery of the US dollar. It recently fell to 1.3071, and it trades at 1.3075, looking at the 1.3050/55 area.

In the UK, employment data was mostly ignored. A decline of the greenback drove the move higher in GBP/USD. Labor figures were mixed with the unemployment rate at 3.9% in June, but claims rose by 94.400, above the 10.000 expected.  The rebound in EUR/GBP from the lowest levels in almost a month toward 0.9000, limited the upside in GBP/USD.

“We continue to believe that BoE will need to provide more stimulus as soon as the November MPC meeting. We are more wary over downside risks to the UK economy from the end of the job furlough scheme, further COVID-19 related disruption and Brexit uncertainty ahead of the end of the transition period. While the reduced likelihood of negative rates in the UK could encourage further pound gains in the near-term, we remain doubtful over whether they can be sustained”, argued analysts at MUFG Bank.

Regarding US data, the NFIB small business optimism index dropped unexpectedly to 98.8 in July while the Produce Price Index rose more than expected, with a 0.6% gain in July. The greenback remained quiet after the reports. Higher US yields appear to be the key support on Tuesday for the move higher.

The US Dollar Index, bottomed at 93.25 hours ago and now is just marginally lower for the day hovering around 93.50. Equity markets finished with gains in Europe, and in Wall Street, the Dow Jones is off highs, up 0.95% and the Nasdaq losses 0.04%.

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