GBP/USD: Two-year yield spread ignores less hawkish Carney, dips to be short lived?

GBP/USD pair dropped nearly 1% on Monday to an intraday low of 1.3465 after Bank of England [BOE] Governor Mark Carney said any increases in UK interest rates in the coming months will be "gradual" and "limited".

However, the two-year US-UK government bond yield spread is not buying Carney's less hawkish talk.

Spread chart

The chart above shows head and shoulders topping pattern, which indicates the spread could narrow further in favor of the British Pound.
Despite Carney's less hawkish comments, the two-year yield spread remained largely unchanged at 96-97 basis points.
The two-year yields are sensitive to the short-term rate hike expectations, thus resilient two-year yield spread could be an indication that markets are not buying Carney's gradual rate hike call, hence the dip in the GBP/USD could be short lived.
The UK economic calendar is thin, thus focus remains on the bond yield differential. Across the pond, housing data, current account number and export and import price index could influence the demand for the US dollar.

GBP/USD Technical Levels

FXStreet Chief Analyst Valeria Bednarik writes-

"From a technical point of view, the pair has broken below the 23.6% retracement of the BOE-linked rally from late last week, with a strong support now at 1.3440, in where the pair has the 38.2% retracement of the same rally, and a bullish 20 SMA in the 4 hours chart. In the same chart, technical indicators head sharply lower within positive territory, correcting extreme overbought readings, and supporting additional slides on a break below the mentioned Fibonacci support."

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.