- GBP/USD turns lower for the second straight day amid the emergence of some USD dip-buying.
- Elevated US bond yields and a turnaround in the risk sentiment underpin the safe-haven buck.
- Receding bets for a 100 bps Fed rate hike in July could cap the USD and limit losses for the major.
Having faced rejection near the 1.2000 psychological mark, the GBP/USD pair is turning lower for the second successive day on Thursday and retreating further from a two-week high touched on Tuesday. The downward trajectory extended through the early part of the European session and dragged spot prices to a three-day low, around the 1.1920 region in the last hour.
The recent recovery in the equity markets ran out of steam rather quickly amid the worsening economic outlook. Investors remain concerned that rapidly rising borrowing costs, the Russia-Ukraine war and the latest COVID-19 outbreak in China would pose challenges to global growth. Apart from this, the nervousness ahead of the crucial European Central Bank decision led to an intraday turnaround in the risk sentiment. This, in turn, assisted the safe-haven US dollar to attract some dip-buying and exerted downward pressure on the GBP/USD pair.
The USD was further underpinned by elevated US Treasury bond yields, bolstered by expectations that the Fed would be forced to tighten its policy at a faster pace to curb soaring inflation. That said, receding bets for a 100 bps Fed rate hike move in July capped any meaningful upside for the greenback. On the other hand, the British pound drew support from the fact that the Bank of England Governor Andrew Bailey on Wednesday raised the possibility of a 50 bps rate hike in August. This, in turn, helped limit deeper losses for the GBP/USD pair.
Traders also seem to be reluctant to place aggressive bets, prefering to wait on the sidelines ahead of the crucial European Central Bank policy decision. The announcement will influence the shared currency and trigger some cross-driven volatility around the GBP/USD pair. Later during the early North American session, traders will take cues from the US economic docket – featuring the release of the Philly Fed Manufacturing Index and Weekly Initial Jobless Claims. The data would drive the USD demand and provide a fresh impetus to spot prices.
