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Jul 10 - 11:55 AM

GBP/USD - COMMENT-Sterling Bounce After Weak US PPI Puts Target Sign On 200-DMA

By Paul Spirgel  —  Jul 10 - 10:30 AM

Sterling bounced off early U.S. lows at 1.2587, pushing it up 0.33% to 1.2645, after weak U.S. PPI data softened the dollar, raising the prospects of another go at GBP/USD's 200-day moving average.

The PPI misses pushed front-end U.S. rates lower, with fed fund futures 0#FF:implying negative rates of -5bps by February 2022 and falling long-end yields adding to recent dollar weakness.

GBP/USD's bounce off minor Fibo support by 1.2570, to 1.2650, emboldened bulls to make another run at Thursday's trend high by 1.2668, and potentially 200-DMA resistance by 1.2699.

However, the dollar's rate-related weakness may be short-lived with three-month UK short-sterling rates 0#FSS: turning slightly negative by March 2022, while the effect of rising U.S. COVID-19 cases could prove transitory as global infections increase as well.

Cancelling out rates and COVID from the GBP/USD outlook would leave Brexit as its main determinant, with final-status UK-EU trade talks still showing little progress nL1N2EF14SnL8N2EG4LB, creating substantial headwinds for further sterling gains.

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Source:
Refinitiv IFR Research/Market Commentary

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