- GBP/USD witnessed fresh selling on Friday and was pressured by a combination of factors.
- Diminishing BoE rate hike bets, softer UK macro data, Brexit woes weighed on the sterling.
- Rising US bond yields, hawkish Fed expectations underpinned the USD and exerted pressure.
- Investors look forward to the US consumer inflation figures for a fresh directional impetus.
The GBP/USD pair remained on the defensive heading into the North American session, albeit has managed to recover a few pips from the daily swing low. The pair was last seen hovering around the 1.3200 round-figure mark, down nearly 0.15% for the day.
Having recorded modest gains in the previous session, the GBP/USD pair met with a fresh supply on the last day of the week and was pressured by a combination of factors. Investors trimmed their bets for an imminent interest rate hike by the Bank of England in December after the UK announced fresh COVID-19 restrictions in the UK. This, along with persistent Brexit-related uncertainties and mostly disappointing UK macro data, acted as a headwind for the British pound.
The UK Office for National Statistics reported that the domestic growth slowed notably and rose only 0.1% in October, well below consensus estimates for a rise of 0.4% and 0.6% in the previous month. Adding to this, the total industrial output dropped 0.6% in October as against consensus estimates for a modest 0.1% increase. This, to a larger extent, overshadowed better-than-anticipated UK Trade balance data and did little to lend any support to the GBP/USD pair.
On the other hand, a fresh leg up in the US Treasury bond yields provided a modest lift to the US dollar, which remained well supported by expectations for a faster policy tightening by the Fed. This was seen as another factor that exerted some downward pressure on the GBP/USD pair. The downside, however, remains cushioned, at least for the time being, as investors preferred to wait for a fresh catalyst from the latest US consumer inflation figures.
Given that the markets have been pricing in the possibility for an eventual Fed liftoff in May 2022, the US CPI report will be looked upon for fresh clues about the Fed's strategy on interest rates. This will play a key role in influencing the USD price dynamics heading into the FOMC monetary policy meeting on December 14-15 and provide a fresh directional impetus to the GBP/USD pair.
Technical levels to watch
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