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Aug 03 - 11:55 AM

GBP/USD - COMMENT-Sterling Eyes 10-DMA Support Amid More-Hawkish Fed Rate Outlook

By Paul Spirgel  —  Aug 03 - 10:10 AM

Sterling is on the back foot, off early NorAm highs by 1.2202, hovering near flat, despite expectations of a 50bp BoE rate hike on Thursday.

Tuesday's GBP$ dip, on the back of heightened geopolitical angst ahead of U.S. Speaker of the House Nancy Pelosi's visit to Taiwan, is gaining momentum as the market dials back expectations of a dovish shift in Fed rate policy and position pruning ahead of the BoE meeting.

Today's comments by the Fed's James Bullard nL1N2ZF0YZ added to growing resolve on the part of the Fed to keep its focus squarely on reducing inflation.
Bullard noted "we'll have to be higher for longer to get inflation coming down in a convincing way.”

In the wake of less-dovish comments by the likes of the Fed's Bullard, Daly nS0N2X4075 and Mester nW1N2WO02O among others, the front-end of the U.S. yield curve has ratcheted higher, with December 2022 Eurodollar futures falling (higher yields) 25bps since July 28.

With the Fed hinting at keeping rates higher for longer, the recent UK-US rate convergence trade which has boosted GBP/USD off 2022 lows by 1.1761 appears to have run its course.

Today's dip below Tuesday-Wednesday lows opens the way for a test of 10-DMA support by 1.2119.
A close below 1.2026 shifts momentum to GBP bears and a test of the July 18 low at 1.1864.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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