In response to BoE’s Bailey’s dovish comments, the GBP/USD saw some significant selling.
A small USD decline provided some support and aided in the formation of a small intraday bounce.
The dollar should be supported by hawkish Fed views and rising US bond yields.
The GBP/USD pair has recovered roughly 40-45 pips from two-and-a-half-month lows, and was last seen trading just over the 1.3800 barrier with minor intraday losses.
Following the previous day’s positive two-way price movements, the GBP/USD pair saw new supply on Thursday, extending its ongoing rejection drop from the key psychological mark of 1.4000. Concerns about the development of the more virulent Delta variant of the coronavirus kept the British pound on the defensive, and comments from Bank of England Governor Andrew Bailey added to the pressure.
Bailey, speaking at the Mansion House in London, avoided any hawkish overtones and maintained that the Bank of England should not overreact to a brief uptick in inflation. The central bank, according to Bailey, anticipates the cost of living to rise in the coming months, but that this will be temporary. The sterling faced a headwind as a result of this, as well as a lower revision to the UK Manufacturing PMI.
Despite a minor US dollar reversal, the GBP/USD pair fell to its lowest level since mid-April. It did, however, find some support near the 1.3765 region. However, the attempted comeback lacked bullish confidence and risks fizzling out rapidly in the aftermath of the Fed’s surprise hawkish move.
At the end of the June meeting, policymakers accelerated the timeline for the first post-pandemic rate hike and signaled two more rate hikes by the end of 2023. A large rise in US Treasury bond yields, on the other hand, could give support to the USD and limit the GBP/USD pair’s upward potential.
Meanwhile, the USD bulls were disappointed by the announcement of Initial Jobless Claims on Thursday, which declined more than expected to 364K from 415K the week before. Traders are now waiting for the US ISM Manufacturing PMI to provide some direction. The major focus, though, will be on Friday’s monthly jobs report (NFP)./n
