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Aug 05 - 11:55 AM

GBP/USD - COMMENT-Sterling Hit After US Payroll Beat Lifts Fed Hike Expectations

By Paul Spirgel  —  Aug 05 - 09:35 AM

Sterling has slipped to a new 10-day low at 1.2004, after U.S. payroll data nL1N2ZH136 surprised significantly to the upside.
The NFP and earnings beats are adding weight to Fed member musings that expectations for rate cuts in early 2023, are misplaced.

GBP/USD bears are testing support at 1.2026, the 50% Fibo of 1.1761-1.2992.
A close below 1.2026 can increase bearish momentum putting a series of July lows at risk, including July 21's 1.1891 and July 14's daily low at 1.1761.

The more-hawkish Fed rate path is likely to keep downward pressure on GBP/USD, as the BoE's attempt to keep pace with the Fed by hiking 50bps on Thursday, will have little effect closing the gap between diverging Fed-BoE hike paths.

rate futures 0#ED: currently price a 70% chance of a third 75bp hike at the Fed's Sept.
27 meeting.
In contrast, UK rate futures are pricing a 50% chance for a 50bp hike at the BoE's Sept.
15 meeting, even as the BoE has forecast UK inflation rising above 13% by fall 2022.

UK-US rate divergence, as well as rising UK inflation and recession fears, are likely to keep GBP/USD on the back foot.
Without a dramatic change in the pace of BoE hikes, 2022 lows at 1.1761 may be a mere speed bump on the way to March 2020 lows by 1.1413.

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Refinitiv IFR Research/Market Commentary


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