- GBP/USD remains depressed for the fourth straight session and drops closer to the monthly low.
- The BoE's gloomy economic outlook continues to undermine sterling amid sustained USD buying.
- The mixed UK employment data fail to impress bullish traders or provide any impetus to the pair.
The GBP/USD pair manages to defend the 1.2000 psychological mark on Tuesday and stages a modest bounce from the vicinity of the monthly low. The attempted recovery, however, lacks follow-through and the pair remains on the defensive, below the 1.2050 area through the early part of the European session.
The UK Office for National Statistics reported that the number of people claiming unemployment-related benefits fell by 10.5K in July against the 32K fall anticipated. The UK unemployment rate, meanwhile, was unchanged at 3.8% during the three months to June. This, to a larger extent, offset stronger wage growth data. The rather unimpressive data comes on the back of the Bank of England's warnings that the economy is likely to slip into recession later this year and acts as a headwind for the British pound.
The US dollar, on the other hand, gains traction for the third successive day and climbs back closer to the monthly peak amid hawkish Fed expectations. This turns out to be another factor exerting some downward pressure on the GBP/USD pair. Despite last week's softer US CPI report, Fed officials stressed that it is too soon to declare a victory on inflation and have maintained a hawkish tone. This, in turn, suggests that the Fed would stick to its policy tightening path and underpins the greenback.
Apart from this, worries about a global economic downturn offer additional support to the safe-haven buck and support prospects for a further depreciating move for the GBP/USD pair. That said, traders might refrain from placing aggressive bets and prefer to move on the sidelines ahead of the FOMC monetary policy meeting minutes, scheduled for release on Wednesday. This makes it prudent to wait for sustained weakness below the 1.2000 mark before positioning for any further near-term losses.
In the meantime, traders on Tuesday might take cues from the US economic docket - featuring the release of housing market data and Industrial Production figures. This, along with the broader market risk sentiment, might influence the USD price dynamics and produce short-term trading opportunities around the GBP/USD pair.
Technical levels to watch
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