Due to a strong U.S. Dollar demand, GBP/USD declined below 1.2400 on Monday, pushing the major down for a second straight day. Markets’ revised assessment of the Fed’s interest rate forecast drives up yields on U.S. Treasury bonds, which in turn strengthens the U.S. dollar. The US ISM Services PMI comes next.
The U.S. Dollar gets upward traction for the second consecutive day as the Federal Reserve’s (Fed) next policy move remains unpredictable, and this proves to be a crucial element imposing some pressure on the major. It’s worth noting that a wave of influential Fed officials this week reinforced the case for not raising interest rates, yet markets are still pricing in another 25 basis point boost in June. Furthermore, following the release of U.S. monthly employment data on Friday, investors appear to have pushed out expectations for an impending pause in the Fed’s rate hike campaign to July and eased off on bets for rate cuts later in the year.
The headline NFP figure revealed that the U.S. economy added 339K jobs in May, well exceeding the previous month’s total of 294K and beyond consensus expectations of 190K. However, additional information revealed that the unemployment rate increased to 3.7%, as opposed to a projected increase to 3.5% from 3.4% in April. Furthermore, average hourly earnings fell to 4.3% from 4.4%, indicating that pay growth is slowing. Nonetheless, the data was solid enough to sustain the Fed’s expectations for additional policy tightening, which is pushing U.S. Treasury bond yields higher and boosting the Greenback. However, the existing risk-on atmosphere, as shown by a broadly optimistic tone in the equities markets, appears to cap the safe-haven buck and may give support to the GBP/USD pair.
The passing of legislation to increase the government’s $31.4 trillion debt ceiling in order to prevent a historic American default continues to provide strong support for the market attitude. Additionally, a private sector survey released on Monday revealed that China’s services activity increased in May, which encourages investors. In addition, rising anticipations of future interest rate increases by the Bank of England (BoE), supported by higher-than-anticipated UK consumer inflation data for May, may help to contain losses for the GBP/USD pair, at least temporarily. As a result, it is wise to hold off on setting up for any significant spot price drop until there has been considerable follow-through selling.
Market mood has improved with the approval of legislation to increase the government’s $31.4 trillion debt ceiling and avert a historic American default. Additionally, a private-sector poll issued on Monday indicated that China’s services activity increased in May, boosting investor confidence. Aside from that, the GBP/USD pair may continue to be under pressure for the time being due to strengthening expectations for future interest rate rises by the Bank of England (BoE), supported by stronger-than-expected U.K consumer inflation data for May. It is wise to wait until there has been a considerable amount of follow-through selling before positioning for any significant decrease in spot prices. Before the US ISM Services PMI, which is scheduled to be released later during the early North American session, traders are currently waiting for the publication of the final U.K Services PMI.
GBP/USD Short (Sell)
Enter At: 1.2338
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