- GBP/USD resumes downside towards the all-time low after a corrective bounce.
- BOE refrains from early intervention, UK government rules out scope for canceling mini-budget.
- Pessimism in the UK contrasts with the hawkish Fedspeak, firmer yields to favor US dollar.
- Bears can keep reins and dig deeper, US Durable Goods Orders, CB Consumer Confidence eyed.
GBP/USD fades bounce off the all-time low marked on Monday, easing to 1.0670 during the early Asian session on Tuesday, as pessimism surrounding the UK remains intact. Also exerting downside pressure on the Cable pair is the hawkish Fedspeak ahead of the week’s key US data.
Be it the newly formed British government or the Bank of England (BOE), both disappointed the GBP/USD traders the previous day by turning down the hopes of meddling to defend the British Pound (GBP).
When asked whether the government is planning to change the measures set out in the mini-budget, British Prime Minister Lis Truss' spokesman responded by simply saying "no," as reported by Reuters. The diplomat also mentioned that it is essential that BOE independence remains while adding that we don’t comment on interest rates.
On the other hand, the BOE stated that they are monitoring developments in financial markets very closely in light of the significant repricing of the financial assets. The BoE further noted that they welcome the government’s commitment to sustainable economic growth and the role of the Office for Budget Responsibility.
Elsewhere, The UK Times stated that Labour has surged to its largest poll lead over the Conservatives in more than two decades, with voters turning against (UK Chancellor) Kwasi Kwarteng’s tax-cutting budget. A YouGov poll for The Times today puts Labour 17 points clear of the Tories — a level of support not seen since Tony Blair won his landslide victory in 2001.
On the other hand, Chicago Fed National Activity Index weakened to 0.0 in August versus 0.09 market expectations and an upwardly revised prior reading of 0.29. Even so, Boston Fed President Susan Collins said, per Reuters, “Getting inflation down will require slower employment growth, somewhat higher unemployment rate”. Following that, Cleveland Fed President Loretta Mester said on Monday that if there is an error to be made, better that the Fed do too much than to do too little.
Amid these plays, the yields rallied as the traders sought premium to hold riskier assets while the equities dropped, which in turn helped the US dollar to remain firmer.
Moving on, headlines from the UK will be crucial for the short-term direction of the GBP/USD pair. However, significant attention could be given to the US CB Consumer Confidence for September and Durable Goods Orders for August will be crucial to watch for intraday guidance. The bears will likely keep the reins and may dominate further if the scheduled US data offers a positive surprise.
Also read: US Consumer Confidence Preview: Near-term relief or more risk aversion?
Technical analysis
Unless crossing a previous support line from May, around 1.1270-80 by the press time, GBP/USD remains vulnerable to dropping towards the record low.
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