GBP/USD bulls settle back near 1.2250 but keep charge.The US dollar is weighed following dialled-down Fed monetary policy.
GBP/USD is trading at 1.2254 and higher on the day on a weaker US dollar after the Federal Reserve meeting on Wednesday and a statement that left the futures markets tied to Fed policy expectations tilted towards a more moderate increase for the next meeting.
Domestically, there has been no UK data but investors are second-guessing the Bank of England’s next move. The central bank meets on August 4. and markets are pricing the central bank to continue its tightening cycle with the possibility of a larger 50-bp increase.
Nevertheless, doused in political and economic woes, the pound has been one of the laggards this year despite The Old Lady out of the traps with policy tightening relatively early. Net short GBP positions edged lower for a second week with the market expecting more rate rises in the offing if Truss becomes the next UK PM in view of her tax-cutting agenda. Nevertheless, the poor outlook for growth in the UK remains a significant concern for speculators.
”GBP has been trading under a cloud of negative sentiment for large swaths of this year,” analysts at Rabobank noted. ”It was notable in May that the BoE’s (as expected) rate hike failed to stop the pound from falling as the market latched on to the Bank’s downside growth revision.”
”Around this time the OECD forecast that the UK would see no growth in 2023, a little worse than our house forecast of 0.2%. The BoE, like most other central banks, is committed to reigning in inflation, even at the cost of growth. However, the absence of the latter has provided a strong headwind for the pound.”
Meanwhile, the US dollar has also been juggled between the bears and bulls depending on risk sentiment. The weakness in the euro has benefitted the US dollar due to the gas woes in Europe and poor business sentiment from Germany on Monday. Additionally, an overall gloomy outlook for world growth as forecasted by the International Monetary fund has helped to buoy the greenback for its safe haven allure.
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