The GBP/USD pair continues to face downward pressure, trading in negative territory for the fourth consecutive week during the early European session on Tuesday. Currently hovering around 1.2203, the major pair has lost 0.07% on the day.
One factor contributing to the pound’s weakness is the Bank of England’s (BoE) decision to maintain the benchmark rate at a 15-year high level of 5.25%. This marks a halt in the BoE’s streak of 14 consecutive rate hikes since December 2021. The BoE officials have indicated that further meetings are possible, suggesting that interest rates could either be raised or halted depending on future economic developments.
Contrasting with the BoE’s stance, the US Federal Reserve’s (Fed) hawkish approach is bolstering the US Dollar and acting as a headwind for the GBP/USD pair. Neel Kashkari, President of the Minneapolis Federal Reserve Bank, expressed his support for another rate hike this year, emphasizing the need for US rates to rise and be maintained at higher levels to cool down the economy. Other Fed officials, including Susan Collins and Mary Daly, presidents of the Federal Reserve Banks of Boston and San Francisco respectively, also highlighted the likelihood of future rate increases despite a slowdown in inflation. Austan Goolsbee, President of the Chicago Fed, acknowledged the possibility of a soft landing but cautioned that inflation risks remain significant and that the Fed should remain committed to achieving its 2% inflation target.
Furthermore, the US Dollar Index (DXY), which measures the value of the USD against a basket of foreign currencies, is holding above the 106.00 mark, reaching its highest level since November. Additionally, the 10-year yield has risen to 4.546%, a level not observed since October 2007.
In terms of upcoming economic data, market participants will closely monitor the US CB Consumer Confidence for September and New Home Sales, both scheduled for release later on Tuesday. The focus will then shift to the UK Gross Domestic Product (GDP) for the second quarter and the US Core Personal Consumption Expenditure (PCE) Price Index, which will be published on Friday.
These events and data releases are expected to have a significant impact on the GBP/USD pair, shaping the near-term trajectory of the currency pair. Traders and investors will closely watch the developments in both the UK and US economies, as well as central bank policy decisions, to make informed trading decisions.
More detail via FXStreet here… ( Image via FXStreet )