- GBP/USD reverses an intraday dip, though struggles to make it through the 1.0900 mark.
- Concerns about rising UK debt continue to undermine sterling and acts as a headwind.
- Recession fears, resurgent USD demand contributes to capping the upside for the major.
The GBP/USD pair recovers early lost ground to the 1.0765-1.0760 area and climbs to a fresh daily high during the mid-European session. Spot prices, however, struggle to capitalize on the move and remain below the 1.0900 round-figure mark.
The Bank of England's move on Wednesday to buy long-term bonds to restore stability appears to have calmed the market and acts as a tailwind for the British pound. This, in turn, assists the GBP/USD pair to attract some dip-buying, though a combination of factors continues to act as a headwind and caps any meaningful upside for spot prices.
Investors seem less confident in the UK government’s ability to manage the ballooning debt, especially after the announcement of the mini-budged last week. The massive unfunded tax cuts could stretch Britain's finances to their limits and derail the BoE's efforts to contain sky-high inflation, creating additional headwinds for the UK economy.
Apart from this, the emergence of fresh US dollar buying further contributes to keeping a lid on the GBP/USD pair, at least for the time being. Growing acceptance that the Fed will tighten its policy more aggressively to curb inflation triggers a fresh leg up in the US Treasury bond yields. This, along with the risk-off impulse, underpins the safe-haven buck.
The aforementioned factors make it prudent to wait for strong follow-through buying before positioning for a further recovery in the GBP/USD pair, from an all-time low touched earlier this week. In the absence of any major market-moving economic releases from the UK, traders on Thursday will take cues from a speech by BoE Deputy Governor David Ramsden.
Traders will further take cues from the US economic docket, featuring the release of the final Q2 GDP print and the usual Weekly Initial Jobless Claims. This, along with speeches by influential FOMC members and the US bond yields, will drive the greenback demand and contribute to producing short-term trading opportunities around the GBP/USD pair.
Technical levels to watch
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