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Jan 06 - 11:55 AM

GBP/USD - COMMENT-Shallow Sterling Dip On Hawkish Fed Cushioned By BoE Feb Hike Views

By Paul Spirgel  —  Jan 06 - 11:07 AM

GBP/USD fell 0.18% to 1.3531 on Thursday, weighed down by the previous session's hawkish Fed minutes, though sterling remained anchored near recent highs by expectations of more BoE tightening while trepidation ahead of Friday's U.S. non-farm payrolls report constrained prices.

The dollar's rise versus the pound has been somewhat subdued considering benchmark 10-year Treasury yields hit nine-month highs in the minutes aftermath.

Sterling traders have maintained bullish resolve since cable's rise from 2021 lows by 1.3162 in the wake of the BoE's rate hike in December 2021, contributing to Wednesday's two-month high of 1.3599 before the minutes.

GBP's bullish structure is supported by rate markets BOEWATCH indicating a 74% chance for a full 25bp rate hike after the BoE's Feb.
3 meeting.

The Fed's hawkish turn has had a limited effect on the dollar versus other currencies that are also moving toward policy normalization, such as sterling, CAD and aussie.

A key wild card for the Fed remains COVID as well as where inflation and employment settle as post-pandemic base effects subside.
Should the Fed hike too aggressively and push inflation back near weak pre-pandemic levels the recovery -- and the dollar -- could be threatened.


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GBP Chart: Click here

Source:
Refinitiv IFR Research/Market Commentary

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