GBP/USD to face downside pressure towards the 1.38 mark – Westpac

FXStreet Insights Team FXStreet

GBP/USD has slipped below 1.40 due to a rapid increase in COVID-19 cases in Britain. The Delta variant is wreaking havoc but recovery is still sound. What’s more, UK/EU tensions over N. Ireland are likely to weigh on GBP into next week’s BoE meeting, economists at Westpac report.

Reopening delays may dampen robust recovery

“UK’s attempts to renegotiate the N. Ireland Protocol in order to avoid potential civil unrest (Unionist marching season peaks on 12th July) stoked EU frustration that UK is failing to implement the existing agreement (EU has insisted that UK’s unilateral ‘grace period’ on traded goods ends on 30th June). The standoff shows the potential fragility of the deal struck with EU and potentially of the United Kingdom itself.”

“This week’s UK/AU trade deal is the first fully independent (of EU) trade deal that the UK has struck since Brexit. The UK hopes to build on this as well as differentiate its post Brexit financial system. Both aspects may inflame rather than placate EU tensions. Survey data into next week’s BoE MPC should show further recovery potential but the delay in relaxing all covid restrictions may dampen near-term prospects.”

“Near-term tensions may pressure GBP/USD towards support around 1.38, but it is still seen as a potential base area for an eventual range flip to the upside.”

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD hangs close to monthly lows, still defends 0.7100 ahead of Fed decision

AUD/USD retains its negative bias for the third straight day, defending 0.7100 while trading close to a monthly low in Wednesday's Asian session on Wednesday. The US Dollar stands firm near a two-week high as the anticipated Fed rate hike and oil-driven inflation fears continue to push US bond yields to a multi-year high. Furthermore, escalating Middle East tensions benefit the safe-haven buck and weigh on the risk-sensitive Aussie.

USD/JPY holds firm above 155.00, awaits Fed policy announcements

USD/JPY climbs to a fresh one-week high above 155.00 in the Asian session on Wednesday amid a bullish US Dollar. Oil-driven inflation fears, along with the anticipated Fed rate hike, continue to support surging US bond yields. Moreover, rising US-Iran tensions underpin the USD's reserve currency status. The pair, however, remains below the mid-155.00s as bulls seem hesitant ahead of the Fed decision later today and the BoJ meeting, starting on Thursday.

Gold traders seem noncommittal below $4,350; eyes Fed rate decision

Gold clings to modest intraday gains through the first half of the European session, albeit it lacks follow-through buying and remains below $4,350. The US Dollar eases from a two-week high amid some profit-taking, offering support to the commodity. Traders, however, seem hesitant to place aggressive directional bets and opt to wait on the sidelines heading into the key central bank event risk.

Cardano's bearish breakout warns of a 15% downside risk

Cardano (ADA) hovers around $0.1900 at press time on Wednesday after a 6% decline the previous day, breaking below a crucial support level. Declining on-chain activity across the Cardano ecosystem, with reduced transaction count and Real Economic Value (REV), suggests waning user demand.

Fed decision in focus

Starting with the most important, the Fed decision. Heading into the event, data showed a rather punchy US August jobs report, which, you will likely recall, triggered a hawkish Fed rate repricing in rates markets. However, the recent US August CPI print mattered more.

How Japan became the World's Banker and why that era may be ending

Japan's ultra-low interest rates helped finance trillions of dollars in global investments for more than a decade, making the Japanese Yen one of the world’s cheapest sources of funding. With the Bank of Japan expected to tighten policy again this week, that advantage may be entering a new phase. While most major economies raised interest rates, Japan remained the world's outlier.