The GBP/USD pair had been on a winning streak, but that came to an end as the currency pair faced pressure from a modest USD bounce. The recent recovery in US bond yields is seen as a key factor benefiting the greenback. While bets for a less hawkish Fed and a positive risk tone may act as headwinds for the USD, traders are now closely watching the FOMC decision on Wednesday ahead of the BoE meeting on Thursday.
Modest USD Bounce
The GBP/USD pair closed lower on Tuesday, snapping a three-day winning streak, as a modest USD bounce put pressure on the currency. The greenback has been on the back foot recently, but it rebounded as US bond yields recovered. The benchmark 10-year Treasury yield rose to 1.64%, up from the lows of 1.51% earlier this month. A higher yield is considered a positive for the USD, as it makes US assets more attractive to foreign investors.
Impact of FOMC Decision and BoE Meeting
The Federal Open Market Committee (FOMC) decision on Wednesday is expected to have a significant impact on the GBP/USD pair. The Fed is expected to maintain its accommodative monetary policy, but any hints of a shift towards a more hawkish stance could put pressure on the GBP/USD pair. Traders will be closely watching the FOMC statement and the press conference by Fed Chair Jerome Powell for any clues.
The Bank of England (BoE) meeting on Thursday is also expected to have an impact on the GBP/USD pair. The BoE is expected to keep its policy on hold, but any comments on the outlook for the UK economy and inflation could move the currency pair. Traders will be watching for any hints of a shift towards a more hawkish or dovish stance.
Bets for a Less Hawkish Fed
While a recovery in US bond yields is benefiting the USD, bets for a less hawkish Fed and a positive risk tone may act as headwinds for the currency. The recent rise in COVID-19 cases in some parts of the world has raised concerns about the pace of the global economic recovery, and this could put pressure on riskier assets like stocks and commodities. If investors turn to safe-haven assets like the Japanese yen and the Swiss franc, this could put pressure on the USD.
Conclusion
The GBP/USD pair faced pressure from a modest USD bounce and a recovery in US bond yields. The FOMC decision and the BoE meeting are expected to have a significant impact on the currency pair, with traders watching for any hints of a shift towards a more hawkish or dovish stance. While bets for a less hawkish Fed and a positive risk tone may act as headwinds for the USD, any hints of a shift towards a more hawkish stance could put pressure on the GBP/USD pair.
