- A broad-based USD strength prompted some selling around GBP/USD on Wednesday.
- Upbeat US ADP report remained supportive of the strong bid tone surrounding the USD.
- A modest slide in the US bond yields capped the USD and helped limit losses for the pair.
The GBP/USD pair managed to recover around 35-40 pips from the daily swing lows and was last seen trading around near the 1.3580 region, still down over 0.30% for the day.
The pair witnessed some selling on Wednesday and snapped four consecutive days of the winning streak to one-week tops, around mid-1.3600s touched in the previous session. A combination of factors pushed the US dollar back closer to one year tops, which, in turn, was seen as a key factor that exerted downward pressure on the GBP/USD pair.
Investors seem convinced that the Fed would begin tapering its bond purchases as soon as November. The markets might have also started pricing in the prospects for a rate hike in 2022 amid worries that the recent surge in crude oil/energy prices will stoke inflation. This, along with the risk-off impulse, continued underpinning the safe-haven USD.
Concerns that a faster than expected rise in inflation could derail the global economic recovery weighed on investors’ sentiment. Adding to this, fragile US-China trade ties, China Evergrande’s debt crisis and a stalemate over the US debt ceiling triggered a fresh wave of a risk-aversion trade and led to a sharp fall in the equity markets.
On the economic data front, the ADP report showed that the US private-sector employers added 568K jobs in September as against 428K anticipated and the previous month’s downwardly revised reading of 340K. This, however, was offset by a modest pullback in the US Treasury bond yields, which capped gains for the USD and helped limit deeper losses for the GBP/USD pair.
It, however, remains to be seen if bulls are able to capitalize on the move or the attempted recovery meets with some fresh supply at higher levels. Hence, it will be prudent to wait for a sustained move beyond the daily swing highs, around the 1.3625 region before positioning for any further appreciating move for the GBP/USD pair.