GBP/USD Faces Selling Pressure as Stronger USD Dampens Momentum

  • The GBP/USD pair is experiencing downward pressure, with the British pound losing ground against the US dollar.
  • The strengthening US dollar is a key factor behind the GBP/USD pair’s decline, as it rebounds from a one-month low.
  • Concerns about global economic slowdown, particularly in China, and disappointing Chinese macro data contribute to a softer risk tone, benefiting the safe-haven US dollar.

The GBP/USD pair experiences selling pressure, continuing its pullback from the 1.2700 level, as the US Dollar (USD) strengthens. Currently trading around 1.2640, just above the daily low, the pair remains bearish in the early European session.

The resurgence of the USD ends its two-day decline, reaching a one-month low. This contributes to the downward pressure on GBP/USD. Despite the initial reaction to the Federal Reserve’s decision to pause rate hikes, a more hawkish outlook suggests potential rate increases of up to 50 basis points by year-end. The Fed’s projection of rates peaking at 5.6% this year, up from the previous estimate of 5.1%, along with expectations of stronger economic growth, prompts a rise in US Treasury bond yields. This, combined with a cautious market sentiment due to global economic slowdown concerns, strengthens demand for the safe-haven USD.

Worries about China’s economic slowdown are further intensified by disappointing macro data, overshadowing the People’s Bank of China’s rate cuts on medium-term loans. This leads to a preference for safe-haven assets, benefiting the USD.

However, the downside for GBP/USD is supported by expectations of the Bank of England (BoE) taking a more aggressive stance on policy tightening to combat persistent inflation. The market has priced in another 25 basis points BoE rate hike on June 22, reinforced by positive UK jobs data indicating sustained growth. This cautionary outlook tempers aggressive bearish trading.

Traders will be monitoring the US economic docket, including Retail Sales, Initial Jobless Claims, Empire State Manufacturing Index, Philly Fed Manufacturing Index, and Industrial Production. These factors, along with US bond yields and overall risk sentiment, will influence USD price dynamics and provide new momentum to the GBP/USD pair in the early North American session

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