Ella 
GBP/USD bears take hold at three-week lows, even on hold for now
Sterling traders sideways on uncertainty between 25 and 50 bps of BoE rate hike
UK recession fears, dollar bullish bias, rising yields weigh on pound
U.S. ISM services PMI, Friday’s non-farm clues bring new clues
GBP/USD is close to the three-week low recorded the previous day and is still under pressure around 1.2710, reflecting market anxiety ahead of US data and the Bank of England interest rate decision.
Worries over the Bank of England’s inability to defend the pound weighed on prices, although markets consolidated after a volatile session and cautious sentiment ahead of the top catalyst spurred sterling bears at multi-day lows. The Bank of England is expected to raise the benchmark interest rate by 25 basis points.
However, the BoE statement and Governor Andrew Bailey’s speech will be the main focus in predicting the hawkish cycle and GBP/USD going forward. GBP/USD could recover from multi-day lows if BoE officials remain hawkish amid the latest slowdown in UK inflation.
Aside from BoE concerns, a consolidation in the U.S. dollar index (DXY) is also a bearish reason for GBP/USD. Still, the U.S. dollar index, which took the risk-off sentiment on Wednesday and benefited from strong U.S. Treasury yields, retreated from a resistance line nine weeks ago and was last down at 102.60. Strong U.S. ADP employment change data for July may also benefit the dollar index bulls.
Also, the U.S. Treasury Department raised the possibility of testing demand for U.S. bonds following a ratings downgrade, boosting weekly issuance of longer-dated debt, which in turn boosted bond coupons and the dollar on Wednesday.
Instead, U.S. Treasury Secretary Janet Yellen and White House economic adviser Jared Bernstein defended the credibility of U.S. debt late Wednesday. The two policymakers also vouched for the strength of the U.S. economy after Fitch Ratings cited such concerns as the catalyst for a downgrade of the U.S. government’s credit rating. It may also have something to do with the recent stabilization of the market. As a result, U.S. 10-year Treasury yields rose to their highest level since November 2022, while Wall Street benchmarks closed in the red. Still, S&P 500 futures are hovering at two-week lows after falling for the past two sessions.
Looking ahead, the Bank of England will be in focus for GBP/USD traders, followed by US data around employment and activity. The U.S. is to release ISM services PMI, factory orders, initial jobless claims and quarterly report on non-farm productivity and labor costs per unit.
