On Thursday, GBP/USD saw some selling, extending the week’s retracement fall.
The pair was under pressure due to cross-driven weakness resulting from a significant spike in the EUR/GBP.
A minor correction in the US dollar provided some support and helped limit any additional losses.
During the early North American session, the GBP/USD pair continued its steady intraday decline and hit new weekly lows around 1.3740.
Following the previous day’s positive two-way price movements, the GBP/USD pair saw new supply on Thursday, extending the rejection decline from the 1.3900 area this week. The decline was fueled entirely by cross-driven weakness resulting from a robust gain in the EUR/GBP cross, albeit losses were limited by a significant pullback in the US dollar.
The USD saw some profit-taking as investors absorbed Wednesday’s hawkish FOMC meeting minutes, despite a surge in demand for the common currency. A continuation of the current decrease in US Treasury bond yields, as well as an unexpected increase in US Initial Weekly Jobless Claims, added to the pressure on the greenback.
However, signs that the Fed is edging closer to tapering its asset purchases sooner than expected could be a positive for the dollar. The minutes from the June FOMC meeting revealed that policymakers agreed that if inflation or other threats materialize, they must be prepared to act, implying that QE tapering conversations could begin in the coming months.
This, together with the current risk-off atmosphere, could give the safe-haven USD some support. Concerns about the economic consequences of the highly contagious Delta strain of COVID-19 spreading have weighed on global risk sentiment. A sea of red in the equity markets reflected this, with traditional safe-haven currencies benefiting.
The underlying environment is favorable to bearish traders, implying that further weakness is likely. A continuation of selling below monthly swing lows, around 1.3730, will underline the bearish outlook and encourage strong technical selling. The GBP/USD pair might therefore become vulnerable, falling back to test the strong horizontal support of 1.3665./n
