GBP-USD traders have their eyes fixed on the Bank of England (BoE) and the ever-volatile U.S. economic landscape. Let’s dissect the unfolding scenarios that could sway the sterling against the dollar.
BoE’s New Guard
The spotlight is on Clare Lombardelli, the Bank of England’s next deputy governor for monetary policy, who is set to begin her term on July 1, 2024. Before her official start, she’s stepping into the public eye to field questions from lawmakers in parliament’s Treasury Committee. Lombardelli, previously the OECD’s Chief Economist, brings a fresh perspective.
Meanwhile, the GBP-USD reacted timidly to the UK’s labor market data, which showed a mix of weakening job numbers but stubbornly high wage growth. This tightens the BoE’s hand and possibly delays any aggressive rate cuts until August, despite an uptick in unemployment to 4.2% and back-to-back negative payroll revisions.
The Dollar’s Dominance Continues
Across the pond, the U.S. dollar is finding some backbone on rising Treasury yields, which hit a five-month high of 4.60%. This was driven by renewed inflation fears and geopolitical tensions. Treasury Secretary Janet Yellen acknowledges the reduction in inflation but notes that more efforts are necessary to stabilize the economy.
With the Federal Reserve pushing back its timeline for rate cuts amid stubborn inflation, the dollar’s strength becomes a formidable counter to GBP pressures.
Similarly, the U.S. industrial sector showed resilience with a 0.4% rise in production, while capacity utilization ticked upwards. This paints a picture of an economy that isn’t ready to back down just yet.
From a technical analysis perspective, things look ugly for the GBP-USD. Last week’s close was the worst week it has had since June 2020. If that wasn’t enough of a bearish outlook, the GBP-USD is working on its fourth straight month lower, the longest stretch since January to April 2022. And unless something horribly bearish occurs to the USD, the GBP-USD’s weakness will likely continue.
