- GBP/USD experiences a downturn, marking a 0.35% decline after peaking at 1.2710.
- US core Personal Consumption Expenditure (PCE) inflation cools down to 3.5% YoY in October, indicating a potential near-peak in the Fed’s tightening cycle.
- Fed rate-cut expectations have been slightly reduced, leading to a rise in US Treasury bond yields, with the 10-year note increasing by six basis points to 4.32%.
- The Bank of England (BoE) is expected to maintain higher rates due to persistent high inflation, with BoE officials maintaining a hawkish stance throughout the week.
The GBP/USD drops in Thursday’s North American session as the Greenback got a vote of confidence from traders, even though data suggests the US Federal Reserve (Fed) might be near the peak of its tightening cycle. Hence, the major is trading at 1.2649 after reaching a high of 1.2710, down 0.35%.
GBP/USD falls as US bond yields rise, bolstered by investors repricing a less-dovish Fed
As mentioned above, the US Dollar Index (DXY), which tracks the buck’s performance against six currencies, including Sterling, gains 0.47%, up at 103.33. The US Bureau of Economic Analysis (BEA) revealed that core inflation, measured by the Fed’s preferred gauge for inflation, the core Personal Consumption Expenditure (PCE), cooled down from 3.7% to 3.5% YoY in October. The headline figures climbed to 3.0% as estimated, 0.4% below September’s number.
Despite reinforcing the disinflationary process is underway in the US, traders trimmed Fed rate-cut bets from 115 bps to 108. Consequently, US Treasury bond yields rose, as shown by the 10-year benchmark note coupon up six basis points at 4.32%-
At the same time, the US Department of Labor revealed the unemployment claims for the week ending on November 25, came at 218K below the 220K foreseen but exceeded the prior’s week number.
Across the Atlantic, estimates the Bank of England (BoE) will keep rates higher for longer, given the fact that inflation is more than twice the BoE’s target. BoE officials crossing newswires, remained hawkish during the week, boosting the Pound Sterling (GBP).
Expectations the Federal Reserve would cut rates before the Bank of England would likely keep the GBP/USD underpinned. However, traders must be aware of a stagflationary scenario looming in the UK. If the economy gets tipped into a recession, expect further GBP/USD downside.
GBP/USD Price Analysis: Technical outlook
Although the GBP/USD remains in an uptrend, today’s dip toward 1.2603 offered longs a better entry price, but price action on November 29 forming a ‘doji’ casts some doubts on the ongoing uptrend, with buyers failing to test the August 30 daily high at 1.2746. If the pair stays below 1.2700, that would open the door to challenge the day’s low, nearby the 1.26 figure. On the other hand, buyers reclaiming 1.2700 would pave the way for challenging August 30 high.
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