GBP/USD - Yield differential still favors GBP, Fed-led exhaustion to be short lived?

Omkar Godbole FXStreet Contributor

GBP/USD dropped to a low of 1.3452 after Fed gave dollar bulls something to lean on. The currency pair traded on the backfoot Asia around 1.3480 levels.

However, the Fed-led exhaustion in the GBP/USD could be short lived, as the bond yield differential still favors GBP. The Fed kept alive December rate hike, still, the US-UK 2-year yield spread has not improved much.

2-year US-UK yield spread

The spread, which stood at 98 basis points, increased slightly to 99 basis points following the Fed decision.

The flat lined yield spread could be due to the fact that that odds of the BoE rate hike in November improved significantly following the release of the stellar UK retail sales report.

Thus, the bullish exhaustion in the GBP/USD as indicated by the long upper shadow of the previous day's candle could be short lived.

Looking ahead - the focus remains on the yield differential. UK Mortgage Approvals and Public Sector Net Brrowing figure are due today. Across the pond, we get the weekly jobless claims and the Philly Fed manufacturing index.

GBP/USD Technical Outlook

FXStreet Chief Analyst Valeria Bednarik writes, "From a technical point of view, the 4 hours chart shows that the risk has turned towards the downside, as the price is currently below a modestly bearish 20 SMA, whilst the RSI indicator hovers within neutral territory, and the Momentum entered bearish territory, with not enough directional strength at the time being. An extension below 1.3440 is now required to confirm a bearish continuation for this Thursday, with scope, then to test the 1.3350/70 region."

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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