GBP/USD slides towards the figure at 1.2000 on hawkish Fed speaking
- GBP/USD sellers eye a break below 1.2000, which would pave the way towards 1.1800.
- Fed’s Daly: 50 or 75 bps hike in September is reasonable; rates will go up and remain on hold until inflation subsidies.
- US jobless claims fall; housing data continues weakening.
The GBP/USD remains defensive after tumbling below the 20 and 50-DMAs on Wednesday, extending its losses for the second straight day. Factors like San Francisco Fed’s Mary Daly pushing back against a “dovish” tilt by the Fed, perceived by market participants on the release of the FOMC minutes on Wednesday, turned sentiment sour. The greenback is staying a comeback, with the US Dollar Index up 0.48%, above the 107.00 threshold.
The GBP/USD is trading at 1.2005, below its opening price, after hitting a daily high at 1.2079 early in the European session.
GBP/USD falls on sentiment shift, with Fed speakers pushing back rate-cuts
Mary Daly, San Francisco Fed’s President, commented that it is too early to declare victory on inflation and said that 50 or 75 bps is reasonable for the September meeting, via CNN. She added that core inflation is still increasing and that the market lacks understanding, but consumers understand that rates won’t go down right after going up.
In the meantime, US Initial Jobless Claims for the week ending on August 13 dropped to 250K, less than 265K estimated by analysts, while the housing market continued to cool down due to further evidence of Federal Reserve rate hikes. Existing Home Sales for July dropped 5.9%, at a rate of 4.8 million units in July, the lowest level since May 2020, when sales hit their lowest point during the Covid-19 lockdowns.
Elsewhere, on Wednesday, the UK reported inflation in July, which cleared the 10% threshold for the first time in 40 years. The Office for National Statistics revealed that the Consumer Price Index (CPI) rose 10.1%, from a year earlier, after recording a 9.4% in June. After the report, money market futures priced in nearly 200 bps of rate hikes, in the BoE rate to 3.75%, by May of 2023.
The GBP/USD is still neutral to downward bias, but central bank monetary policy convergence could lead to range-bound trading. With rates in both countries elevating, growth differences between them will enter into play to dictate the direction of the pair.