GBPUSD receives new bids on Tuesday, snapping a four-day losing streak and falling to a one-week low.
The GBPUSD pair gains some positive traction during the Asian session on Tuesday, snapping a four-day losing streak and reaching a one-week low near 1.2345. The US Dollar (USD) is easing after a strong rally the previous day. And it is an important factor supporting the major. US Treasury bond yields are edging lower after a sharp two-day rise. Which, combined with an overall upbeat tone in the equity markets, prompts some selling of the safe-haven Greenback.
The uncertainty surrounding the Federal Reserve’s (Fed) rate hike path adds to a four-day-old USD recovery move from a two-month low reached last Wednesday.
The USD is weighed down by falling US bond yields and a positive risk tone, which lends support to the pair.
The largely positive US monthly employment figures released on Friday fueled speculation. That the US central bank would raise interest rates. Interest rates may have to be raised again next month. The current market pricing indicates a higher likelihood of a 25-basis point hike at the May FOMC policy meeting.
Market participants, on the other hand, appear convinced. That the Fed will lower interest rates in the second half of the year, despite signs of slowing economic growth. As a result, the market will remain focused on the release of the FOMC meeting minutes. The USD will be influenced by this and Wednesday’s US consumer inflation figures. Meanwhile, USD bulls appear hesitant to place new bets, which acts as a tailwind for the GBPUSD pair.
Meanwhile, the British Pound gained ground after the British Retail Consortium (BRC) reported that like-for-like retail sales increased by 4.9%. During the reported month, total retail spending increased by 5.1% year on year. However, the upside for the GBPUSD pair appears to be limited in light of recent mixed signals from Bank of England. (BoE) members regarding the next policy move. It is worth recalling that BoE MPC member Silvana Tenreyro advocated for rate cuts sooner than expected, arguing that the absence of cost-push shocks would drive inflation well below target.
The Bank of England’s Chief Economist Huw Pill stated that action is still required to assess inflation prospects. And that the onus remains on to deliver enough policy tightening to complete the job. Bullish traders should proceed with caution.
The fundamental backdrop calls for cautious bulls ahead of this week’s key releases.
Moving forward, no significant market-moving economic data is expected. On Tuesday, either the UK or the US will release it. As a result, broader risk sentiment and US bond yields will drive USD demand, providing some impetus to the GBPUSD pair. Meanwhile, given the fundamental backdrop. It is prudent to await strong buying before concluding that the recent pullback from the highest level since June 2022 has run its course and positioning for further gains.
