- GBP/USD edges higher for the second successive day, albeit lacks strong follow-through.
- Bets for further tightening by the BoE underpin the GBP and lend some support to the major.
- Hawkish Fed expectations act as a tailwind for the USD and might cap any meaningful gains.
The GBP/USD pair trades with a positive bias for the second successive day on Tuesday and touches a three-day high, around the 1.2770 area during the Asain session. Spot prices, however, remain confined in a familiar trading range held over the past three weeks or so. This warrants some caution before positioning for an extension of the recent bounce from a one-and-half-month low, around the 1.3615 area, also marking the 100-day Simple Moving Average (SMA) support.
Expectations that the Bank of England (BoE) will increase interest rates further continue to underpin the British Pound (GBP and act as a tailwind for the GBP/USD pair. In fact, the current market pricing indicates a more than 80% chance of a 25 bps lift-off at the next BoE meeting in September. The bets were lifted by the fact that wages in the UK touched a new record growth rate in the second quarter, which adds to worries about long-term inflation even after 14 consecutive rate hikes. Adding to this, the upbeat UK GDP report and slightly higher UK CPI print support prospects for further BoE policy tightening.
The US Dollar (USD), on the other hand, hovers just below its highest level in more than two months touched last week and holds back bulls from placing aggressive bets around the GBP/USD pair, at least for now. Growing acceptance that the Federal Reserve (Fed) will stick to its hawkish stance and keep interest rates higher for longer remains supportive of elevated US Treasury bond yields. Apart from this, a generally weaker risk tone is seen as another factor lending support to the safe-haven Greenback. The market sentiment remains fragile in the wake of concerns about the worsening economic conditions in China.
Investors might also prefer to wait on the sidelines ahead of Jackson Hole Symposium later this week, where comments by central bankers might infuse significant volatility in the markets and provide a fresh impetus to the GBP/USD pair. The focus will further be on the flash PMI prints from the UK and the US on Wednesday, which will provide cues about the economic health and whether the respective central banks can afford to increase interest rates further. In the meantime, traders on Tuesday will take cues from the US economic docket, featuring the release of Existing Home Sales and Richmond Manufacturing Index.
Technical levels to watch
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