GBP/USD pares intraday gains to two-week highs, rising slightly around 1.3625-30.
- The British pound gained some ground on Monday after the Bank of England signaled an impending rate hike.
- The upside is still limited due to the underlying optimistic attitude surrounding the US dollar.
- The safe-haven USD benefited from hawkish Fed predictions and a cautious market attitude.
The GBP/USD pair gave up a significant portion of its intraday gains and was last seen trading around the 1.3625-30 range, still up more than 0.10 percent for the day.
Over the weekend, Bank of England officials signaled an impending interest rate hike, providing a goodish intraday bump to the British pound on the first day of a new trading week. Andrew Bailey, Governor of the Bank of England, has warned of a potentially disastrous time of inflation unless policymakers act. In addition, Michael Saunders, one of the most hawkish members of the Bank of England’s Monetary Policy Committee, stated that investors were correct to bet on rate hikes.
The GBP/USD pair surged to near two-week highs, around 1.3670-75, but failed to benefit on the gain due to a minor increase in US dollar demand. Friday’s poor headline NFP report for September was offset by a significant higher revision to the previous month’s data, reinforcing expectations that the Fed will soon begin tapering its asset purchases. Markets appear to have boosted their bets on the Fed raising interest rates in 2022.
Concerns that the recent spike in crude oil/energy prices may drive inflation have fueled speculation about the Fed tightening policy sooner rather than later. The confluence of factors propelled the yield on the benchmark 10-year US government bond to four-month highs on Friday, breaking beyond the 1.60 percent barrier. This, in turn, continued to operate as a tailwind for the greenback and, for the time being, placed a lid on any substantial follow-through bullish move for the GBP/USD pair.
Meanwhile, investors’ desire for perceived riskier assets has been dampened by fears of a return to stagflation – high prices and low GDP. This was reflected in a softer tone in the equities markets, which was viewed as another reason that aided the dollar’s relative safe-haven position. As a result, it is wise to wait for substantial follow-through selling before initiating new bullish wagers on the GBP/USD pair and positioning for further appreciation.
There will be no big market-moving economic data from the UK, and the US money markets will be closed in commemoration of Columbus Day. This kept investors on the sidelines and contributed to the GBP/USD pair’s advances being capped, rather than prompting some selling at higher levels. Market investors are now looking forward to the release of the UK monthly employment figures on Tuesday for some substantial trading chances.
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