- GBP/USD gains strong positive traction for the second day in a row amid a weaker dollar.
- Optimistic signals from the BoE and easing fears of a new Brexit-related dispute benefit sterling.
- Rising expectations of an early Fed rate hike neither impresses USD bulls nor stops the pair’s upward movement.
GBP/USD has soared to two-week highs during Thursday’s European session, with bulls now looking to build on momentum beyond the round 1.3700 level. At the time of writing, the pair is holding firm near the daily highs around the 1.3720 level.
The US dollar has been unable to hold onto its modest intraday gains
The US dollar has been unable to hold onto its modest intraday gains. A fresh round of selling continued against the US dollar on Thursday, extending the drop from the previous day’s pullback from 13-month highs. Despite the soft tone surrounding US Treasury yields, risk appetite has been further pushing the USD lower. This led to the GBP/USD pair rising for the second consecutive day.
The US CPI report released on Wednesday showed a continued rise in inflationary pressures. A decline in US bond yields seems to have reinforced investors’ doubts about a sustained period of inflation. The FOMC meeting minutes, which indicated that the U.S. central bank will begin tapering its bond purchases in 2021, were somewhat overshadowed by this.
Further, a growing number of policymakers were concerned that inflation could persist. Which at the same time forced investors to bring forward the likely timing of a Fed rate hike. Markets now appear to be waiting for the possibility of an initial rate hike in September 2022 versus December 2022. In the end, however, the developments did little to impress USD bulls and halt the GBP/USD pair’s positive momentum.
On the other hand, sterling has gained some support from the easing of concerns over the UK-EU standoff over the Northern Ireland Protocol. In a statement on Wednesday, the EU offered to reduce customs checks and formalities on British goods destined for Northern Ireland. This comes after Bank of England officials signaled an imminent rate hike, which continues to support sterling.
The GBP/USD pair is now up nearly 150 pips from the weekly lows continues to appreciate further. Market participants now await the US economic calendar. With the release of the PPI producer price index and weekly initial jobless claims. Combined with US bond yields and speeches from influential FOMC members, this will influence the USD and impact the GBP/USD pair.