Forex News

GBP/USD Pair Faces Selling Pressure as USD Strengthens

Published by
Nonhlanhla P Dube
  • The GBP/USD pair is under selling pressure and has retreated from the weekly high. It is currently placed near the daily low, which is around the 1.2420 region.
  • The US Dollar (USD) is gaining strength due to the prospects of further policy tightening by the Federal Reserve (Fed) and a weaker risk sentiment. The safe-haven Greenback is being supported, which is putting downward pressure on the GBP/USD pair.
  • The possibility of an additional interest rate hike by the Bank of England (BoE) might limit losses for the major, and the UK’s stronger inflation figures may keep pressure on the BoE to raise interest rates further, acting as a tailwind for spot prices.

On Thursday, the GBP/USD pair experienced a bearish trend, as it encountered selling pressure and retreated further from the weekly high of around 1.2470-1.2475 that was touched the previous day. Currently, the pair is positioned near the daily low, around the 1.2420 region, remaining on the defensive through the early part of the European session.

There are various factors at play that continue to act as a tailwind for the US Dollar (USD), which in turn exerts some downward pressure on the GBP/USD pair. Firstly, the prospects of further policy tightening by the Federal Reserve (Fed) and a weaker rise sentiment lend support to the safe-haven Greenback. These developments lead to concerns about the economic headwinds stemming from rising borrowing costs and temper investors’ appetite for riskier assets, which is evident from a generally weaker tone around the equity markets. The anti-risk sentiment, in turn, lends additional support to the safe-haven Greenback, which weighs on the GBP/USD pair.

Despite these factors, there are rising bets for an additional interest rate hike by the Bank of England (BoE), which may hold back bearish traders from placing aggressive bets and help limit losses for the major. The stronger UK inflation figures released on Wednesday should also keep pressure on the BoE to raise interest rates further and act as a tailwind for spot prices.

It is important to note that the mixed fundamental backdrop makes it prudent to wait for strong follow-through selling before placing aggressive bearish bets around the GBP/USD pair in the absence of any relevant macro data from the UK. The US economic docket features the release of the usual Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index, and Existing Home Sales, which will drive USD demand and provide some impetus.

The markets now seem convinced that the US central bank will lift rates by 25 bps at the next policy meeting in May and have been pricing in a small chance of another rate hike in June. These bets were reaffirmed by the recent hawkish comments made by several Fed officials. Moreover, incoming macro data from the US points to a resilient economy, fueling concerns that the Fed may have more work to do to tame stubbornly high inflation in the US amid easing fears of a full-blown banking crisis.

Nonhlanhla P Dube

Nonhlanhla P Dube is a senior news reporter at Rateweb. Nonhlanhla is a student of International Relations at the University of South Africa. She reports primarily on personal finance and economics. You can contact her directly by email at nonhlanhla@rateweb.co.za

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Published by
Nonhlanhla P Dube

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