GBP/USD: Fundamentals point to cable paring some of its gains

GBP/USD is trading close to 1.42 as the pound has been benefiting from hints of a Bank of England rate hike. Notwithstanding, FXStreet’s Analyst Yohay Elam explains why BoE’s bullishness is set to be insufficient to stop the dollar.

See: GBP/USD to turn back lower in the near-term – MUFG

Data-driven dollar strength and end-of-month flows may tilt the balance toward the dollar

“According to the New York Times, US President Joe Biden will unveil a large $6 trillion budget – on top of his ambitious infrastructure plans. The news sent investors away from US debt, lifting Treasury yields and making the dollar more attractive.” 

“The focus on Friday is on the Federal Reserve's preferred gauge of inflation – the Core Personal Consumption Expenditure (Core PCE) which is set to jump above 2% yearly. The economic calendar is pointing to an increase of 2.4%, and any beat could raise expectations of a rate hike from the Fed.” 

“Another reason to expect an upward move in the greenback comes from the date – as Monday is a holiday in both the US and the UK, money managers will likely scramble to adjust their portfolios and perhaps undo some of the dollar's losses during the month.”

“Sterling benefited from rising expectations for a rate hike in the UK. Gertjan Vlieghe, a member of the Bank of England, signaled that the ‘Old Lady’ could raise borrowing costs in early 2022. That is ahead of market expectations. On the other hand, doubts about the next stage of the UK reopening are growing. The spread of the B.1.167.2 variant – the one first identified in India – is raising concerns despite the relatively low numbers and Britain's vaccination campaign.”