GBP/USD stabilizes near 1.2700 even as softer US data check Fed bets, BoE hawks eye 0.50% rate hike

GBP/USD treads water around 1.2700 as it struggles to justify the hawkish bias about the Bank of England (BoE), as well as fails to cheer the recently downbeat US data, amid sluggish markets on Tuesday. That said, the US holidays and mixed clues about the central banks’ next moves join the fresh fears of recession to restrict the immediate moves of the Pound Sterling.

US yields curve inversion renews fears of economic slowdown as the difference between the two-year US bond coupons and 10-year counterpart marked the deepest inversion since 1981 on Monday. “The yield curve briefly inverted to 42-year lows Monday as investors increasingly expect the Fed to raise its benchmark borrowing rates to keep inflation in check,” said Reuters.

Not only the fears of US recession but downbeat US data and concerns about the Sino-American tension also challenge the hawkish Fed bets and should have favored the GBP/USD buyers. However, US holidays and the risk-off mood allow the Cable pair to consolidate the recent losses ahead of the top-tier data/events.

That said, the interest rate futures suggest an 85% probability of witnessing 25 basis points (bps) of a Fed rate hike in July, as well as back the chances of BoE’s 0.50% rate hike in August. On the same line, Reuters said, “Futures markets had reflected rate cuts at the Fed's September meeting as recently as May, and are now projecting that the first cuts will come in January.” The market's hawkish mood could be linked to the last week’s central bankers’ comments at the European Central Bank (ECB) Forum in Sintra.

It should be noted that US ISM Manufacturing PMI for June dropped to the lowest level in three years, as well as stayed below the 50.0 level for the seventh consecutive month, as it marked 46.0 figure versus 47.2 expected and 46.9 prior. Further details reveal that the ISM Manufacturing Employment Index slid to a three-month low of 48.1 in June from 51.4 previous readings but the New Orders Index improved to 45.6 from 42.6 marked in May and 44.0 market forecasts. Additionally, the ISM Manufacturing Prices Pair nosedived to the lowest since April 2020, to 41.8, during the said month from 44.2 previous readings. On a different page, S&P Global Manufacturing PMI for June confirmed 46.3 figure, the lowest in five months, whereas the Construction Spending improved 0.9% MoM for May, versus 0.5% expected and 0.4% previous readouts.

Against this backdrop, S&P500 Futures remain inactive after a mildly positive Wall Street performance. That said, the Treasury bond yields remain sidelined after an upbeat week-start move.

Looking ahead, the US Independence Day holiday will offer the GBP/USD pair a lackluster trading day ahead.

Technical analysis

A U-turn from the 12-day-old resistance line, around 1.2715 by the press time, joins downbeat oscillators to suggest the GBP/USD pair’s further downside.