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Aug 25 - 11:55 AM

GBP/USD - COMMENT-Sterling Bounces Off 1.37 Amid Weak German Ifo, US Taper Flutter

By Paul Spirgel  —  Aug 25 - 10:17 AM

Sterling was flat on Wednesday after dipping near 1.37 in early U.S. trade amid below average Refinitiv Matching liquidity FXHEATnL1N2PW0ZZ as markets digested a weak German Ifo data and increased COVID cases, which have tempered global growth and inflation expectations.

GBP/USD has been held hostage to fluctuating Fed taper expectations, which could offset the BoE's own stimulus reduction outlook as a sterling driver, with some still bracing for Fed Chair Jerome Powell to offer details of the U.S. central bank's plans to remove accommodation at Friday's Jackson Hole symposium.

Markets generally expect the Fed to begin tapering asset purchases by December 2021 and ending asset purchases in H2 2022, which would bolster the USD versus other currencies.

The main risk to Fed taper is the recent rise in COVID's Delta-variant cases nS0N2LF02H, which may temper the U.S employment recovery, slowing U.S. growth and inflation.
This risk is seen as global, and USD weakness will likely be transitory.

For now, GBP/USD is likely to remain rangebound between its 30-day Bollis spanning 1.3616 and 1.3989, with risks skewed to the downside should Powell get the ball rolling on taper.

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Source:
Refinitiv IFR Research/Market Commentary

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