The GBP/USD pair continues to face selling pressure for the fourth consecutive day on Wednesday, edging further away from its April 2022 peak around the 1.3140 region, which was touched last week. During the Asian session, spot prices dipped to a four-day low, but managed to hold above the psychological level of 1.3000 for now.
The US Dollar (USD) is gaining positive traction, rebounding from a 15-month low, putting downward pressure on the GBP/USD pair. Data released on Tuesday revealed resilient core US Retail Sales in June, raising doubts about the Federal Reserve’s commitment to a dovish policy stance. This is seen as a factor supporting the Greenback.
Despite the possibility of a 25 bps rate hike at the upcoming Fed policy meeting on July 25-26, markets are not anticipating further rate hikes, with US Treasury bond yields declining and investor sentiment remaining bullish in the equity markets. Additionally, the Bank of England (BoE) is expected to adopt a more aggressive tightening approach, which acts as a tailwind for the GBP/USD pair.
Interest-rate swaps suggest that the BoE may raise interest rates from the current 5% to a cycle peak of 6.5% – the highest since 1998 – in an effort to dampen demand and lower inflation.
This comes after stronger UK wage growth data, which BoE Governor Andrew Bailey and UK Finance Minister Jeremy Hunt believe is contributing to inflationary pressures. Although Bailey expects inflation to decrease significantly this year, he also noted that it remains unacceptably high.
The focus now turns to the UK CPI report scheduled for later on Wednesday, which will heavily influence the BoE’s near-term policy outlook and potentially provide momentum for the British Pound.
In the early North American session, traders will look to US housing market data, including Building Permits and Housing Starts, for further market cues. However, the underlying fundamentals suggest that dip-buying opportunities may arise around the GBP/USD pair.
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