The GBP/USD pair dropped to a 15-day low of around 1.2620 ahead of Thursday’s London market opening, showing minimal response to statements made by Bank of England (BoE) Governor Andrew Bailey compared to those of Federal Reserve (Fed) Chairman Jerome Powell.
Market participants seemed to favor Powell’s speech as the primary catalyst, possibly due to the relatively stronger economic conditions in the UK compared to the US. Furthermore, the positive outcome of the US Banking Stress Test underscored the strength of the US Dollar.
BoE Governor Andrew Bailey expressed his willingness to take necessary measures to reach the inflation target, stating that there were clear signs of persistent inflation. These remarks hinted at the possibility of further interest rate hikes from the “Old Lady,” a nickname for the BoE.
Meanwhile, Fed Chairman Jerome Powell mentioned that they expected more restrictions to be imposed, driven by the labor market. Powell also dismissed the likelihood of an economic downturn as the most probable scenario.
In other news, the Federal Reserve’s stress test exercise revealed that major banks, including JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Morgan Stanley, and Goldman Sachs, possessed sufficient capital to withstand a severe economic downturn. This paved the way for potential share buybacks and dividends for these institutions, according to Reuters.
It’s worth noting that mixed reports on US-China relations influenced the market sentiment. US Treasury Secretary Janet Yellen expressed hopes of visiting China to restore contacts but also emphasized readiness to take actions to safeguard national security interests, even at an economic cost. These factors contributed to the strength of the US Dollar while simultaneously weighing on market sentiment.
Against this backdrop, S&P500 Futures lacked clear direction following two consecutive days of gains. Additionally, the US 10-year and two-year Treasury bond yields consolidated losses from the previous day, hovering around 3.48% and 4.75%, respectively.
Looking ahead, investors will closely monitor Fed Chair Powell’s speech, the revised version of the US Gross Domestic Product (GDP) for Q1 2023, as well as secondary US employment and activity data for clearer market signals.
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