GBP/USD held steady on Thursday nL2N2VY195, and remained caught between recent trend lows below 1.31 and its 10-day moving average by 1.3164, and still in danger of a drop below 1.30 as long as BoE expectations lose ground to the Fed and ECB.
Once a source of sterling strength, the relative rate paths of the Fed and increasingly the ECB are weighing on the pound as all three central banks wrestle with an inflation-versus-growth conundrum.
Fed-BoE rate divergence pushed the pound to recent 2022 lows by 1.3000 as the BoE dialed back aggressive UK rate expectations after the March 17 MPC meeting, where four votes to hike 50bps in February were replaced by one vote to stand patnL5N2VK3VO.
A 35bps rise in Eurodollar futures 0#ED: helped stabilize cable, but traders are now considering a less-dovish ECB.
The spread between December 2022 3-month Sonia futures and December Euribor has fallen 25bps since March 9, hurting GBP broadly.
GBP/USD's destiny remains in the hands of the central banks, and further dovish BoE divergence could trigger a GBP/USD slide below 2022 lows by 1.30 and potentially test early November 2021 lows by 1.2845.
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