The GBP/USD pair struggled to capitalize on the overnight solid bounce of around 100 pips from the weekly low and attracted some selling for the second successive day on Thursday. Spot prices dropped to the 1.2170-1.2165 area during the early part of the European session, albeit managed to rebound a few pips thereafter.
The US dollar was back in demand amid hawkish Fed expectations and drew additional support from the worsening global economic outlook, which, in turn, exerted downward pressure on the GBP/USD pair. The markets seem convinced that the Fed would stick to its policy tightening path to combat stubbornly high inflation and have been pricing in another 75 bps rate hike at the next FOMC meeting in July. The bets were reaffirmed by Fed Chair Jerome Powell on Wednesday, saying that the ongoing rate increases will be appropriate.
Furthermore, investors remain worried that a more aggressive move by major central banks to curb soaring inflation would pose challenges to the global economic recovery. Adding to this, the disappointing release of the flash Eurozone PMI prints for June further raised fears about a possible recession and further underpinned the greenback's safe-haven status. The anti-risk flow led to an extension of the recent decline in the US Treasury bond yields, which capped gains for the USD and extended some support to the GBP/USD pair.
Apart from this, mostly upbeat flash UK PMI prints assisted spot prices to recover near 50 pips from the daily low. It, however, remains to be seen if the GBP/USD pair is able to capitalize on the attempted recovery amid expectations that the Bank of England would opt for a more gradual approach toward raising interest rates. This, along with the UK-EU impasse over the Northern Ireland Protocol of the Brexit agreement, favours bearish traders and supports prospects for a further near-term depreciating move for the GBP/USD pair.
Market participants now look forward to the US economic docket, featuring the release of the usual Weekly Initial Jobless Claims and the flash PMI prints for June. Traders will further take cues from Fed Chair Jerome Powell's second day of testimony before the House Financial Services Committee. This, along with the US bond yields and the broader market risk sentiment, would influence the USD and provide some impetus to the GBP/USD pair.
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