GBP/USD

The GBP/USD pair initiates the new week on a weaker trajectory, distancing itself further from the peak reached on May 16 around the 1.2540-1.2545 range observed last Friday. Spot prices continue to decline steadily during the early European session, with a fresh daily low of approximately 1.2400 registered in the past hour.

The US Dollar (USD) maintains its post-NFP bounce from a low lasting over a week, as uncertainty surrounding the Federal Reserve’s (Fed) rate-hike trajectory persists, causing the GBP/USD pair to decline for the second consecutive day.

It’s important to note that several influential Fed officials expressed support last week for postponing an interest rate hike, but market expectations still include the possibility of a 25 bps increase in June.

Furthermore, following the release of mixed US monthly employment data on Friday, investors have moderated their expectations for an imminent pause in the Fed’s rate hiking cycle until July and have scaled back on their predictions of rate cuts later in the year. Consequently, US Treasury bond yields are likely to rise, bolstering the Greenback and exerting downward pressure on the GBP/USD pair.

Nevertheless, the prevailing risk-on sentiment may deter traders from placing significant bullish bets on the safe-haven US dollar, providing support for the GBP/USD pair.

The passage of legislation to raise the government’s debt ceiling of $31.4 trillion, thus averting a potential American default, coupled with hopes of an economic recovery in China, has boosted investor confidence, resulting in a generally positive atmosphere in the equity markets.

Additionally, expectations of further interest rate hikes by the Bank of England (BoE) have strengthened, supported by better-than-anticipated UK consumer inflation figures for May.

These factors may help limit the losses for the GBP/USD pair. Market participants now eagerly await the release of the final UK Services PMI, which could provide fresh impetus, along with the US ISM Services PMI scheduled for later in the early North American session.

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