- GBP/USD witnessed some heavy selling in reaction to dovish comments by BoE’s Bailey.
- A modest USD pullback extended some support and help stage a modest intraday bounce.
- Hawkish Fed expectations, rebounding US bond yields should lend support to the greenback.
The GBP/USD pair has managed to recover around 40-45 pips from two-and-half-month lows and was last seen trading with modest intraday losses, just above the 1.3800 mark.
Following the previous day's good two-way price moves, the GBP/USD pair met with some fresh supply on Thursday and extended its recent rejection slide from the key 1.4000 psychological mark. The British pound remained on the defensive amid worries about the spread of the more contagious Delta variant of the coronavirus and was further pressured by the Bank of England (BoE) Governor, Andrew Bailey’s comments.
Speaking at the Mansion House, in London, Bailey refrained from offering any hawkish cues and reiterated that the BoE shouldn't overreact to temporary inflation rise. Bailey further noted that the central bank expects the cost of living to go up in the coming months but that should only be short-lived. This, along with a downward revision of the UK Manufacturing PMI acted as a headwind for the sterling.
The GBP/USD pair dropped to the lowest level since mid-April, albeit managed to find some support near the 1.3765 region amid a modest US dollar pullback. The attempted recovery, however, lacked any bullish conviction and runs the risk of fizzling out rather quickly in the wake of the Fed's surprise hawkish shift.
It is worth recalling that policymakers brought forward the timetable for the first post-pandemic rate hike and signalled two rate hikes by the end of 2023 at the end of the June meeting. Apart from this, a strong pickup in the US Treasury bond yields should lend some support to the USD and cap the upside for the GBP/USD pair.
Meanwhile, the USD bulls seemed unimpressed by Thursday's release of the Initial Jobless Claims, which fell more than expected to 364K last week from 415K previous. Traders now look forward to the US ISM Manufacturing PMI for some impetus. The key focus, however, will remain on the monthly jobs report (NFP) on Friday.
Technical levels to watch
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