- GBP/USD will come under some bearish pressure on Thursday, further retreating from YTD highs.
- Reviving USD demand prompts aggressive selling with some pre-BoE trade repositioning.
- The fundamental backdrop still supports the prospect of dip-buying at lower levels.
GBP/USD is extending the previous day’s decline from the 1.2680 area, or the highest level since April 2022, and remains under strong selling pressure on Thursday. The downward trajectory remains unbroken during the early part of the European session, dragging spot prices to a new weekly low, around the 1.2565 area in the last hour.
The US dollar (USD) is making a solid comeback after a slight drop overnight, jumping over the weekly high, which is seen as downward pressure on the GBP/USD pair. Despite signs of easing inflationary pressures in the US, traders remain uncertain about the Federal Reserve’s (Fed) next policy move. In fact, current market prices indicate a better chance that the US Federal Reserve will leave interest rates unchanged rates stable in June. That said, mixed views on the possibility of a rate cut later this year, along with concerns about a slowdown in economic growth, are leading to some short-covering around the dollar.
This, along with some trade reshuffling ahead of the highly anticipated Bank of England (BoE) monetary policy decision, also appears to be contributing to the bullish tone around the GBP/USD pair. However, the decline is likely to remain limited given expectations that the UK central bank will raise interest rates by another 25 basis points later this Thursday. In addition, economic forecasts published by the National Institute for Economic and Social Research (NIESR) indicated that core inflation in the UK showed no signs of peaking. This, in turn, could further prevent traders from taking bearish bets around the British pound.
The market will therefore focus on the post-session press conference where comments from Governor Andrew Bailey will weigh on the GBP. Later in the early North American session, traders will take cues from the US economic paper, which will include the release of the producer price index (PPI) and the usual weekly starting point. Unemployment claims data. Additionally, Fed Governor Christopher Waller’s scheduled speech, along with US bond yields and broader risk-on sentiment, will drive the USD and provide some momentum GBP/USD pair. However, the basic background above calls for some caution for bear traders.
