GBP/USD halts decline and reclaims 1.2600 amid UK’s holiday and hawkish Fed

• GBP/USD trades at 1.2601, up 0.19%, as a UK Summer Bank Holiday and falling US bond yields offer temporary relief to the beleaguered Pound.
• CME FedWatch Tool indicates nearly 50% odds for a 25 bps rate hike in November, keeping the pressure on the GBP/USD pair.
• A packed US economic calendar featuring jobs data and consumer confidence could introduce new volatility and potentially resume the pair’s downtrend.

The British Pound (GBP) stopped its free-fall on Monday against the US Dollar (USD) amidst a UK Summer Bank Holiday, which spurred choppy trading amongst most FX pairs during the overlap of the London-New York session. At the time of writing, the GBP/USD is trading at 1.2601, gaining 0.19%.

GBP gains slightly as US bond yields dip; busy US economic calendar to sway currency dynamics

The current week presents a busy US economic docket, contrary to the UK. On the latter, if not for a speech of the Bank of England (BoE) Chief Economist Huw Pill and the release of housing prices, the GBP/USD fate would lie mainly on the US Dollar dynamics.

However, Monday’s price action was mainly driven by a risk-on impulse, which weighed on global bond yields, particularly in the United States (US). US bond yields tumbled across the board, undermining the greenback, as shown by the US Dollar Index (DXY), a basket of six currencies that measures their performance against the buck, dropped 0.12%, down at 104.060.

Nevertheless, last week’s Jackson Hole speech by the US Federal Reserve (Fed) Chair Jerome Powell was seen as hawkish, as he emphasized the Fed’s commitment to tackle inflation, justifying higher rates if growth continues to be above trend, while the labor market remains tight. He added the US central bank is still data-dependent, noting they would proceed “carefully” when deciding regarding momentary policy.

Following Powell’s remarks, money market futures are confident the Fed will skip a rate hike in September. Nonetheless, for November, the story is different, with traders expecting a 25 bps rate hike, as shown by odds close to 50%, as shown by the CME FedWatch Tool.

Given the backdrop, the GBP/USD pair could resume its downtrend based on the latest data. However, a busy US economic docket could weaken the greenback. On Tuesday, jobs data, consumer confidence, and housing data could ignite volatility in the pair. Any surprises that justify further tightening can pave the way for further US Dollar strength and Sterling (GBP) weakness.

GBP/USD Price Analysis: Technical outlook

After falling below the August 3 low of 1.2620, the GBP/USD extended its losses below the 1.2600 figure but hovers around the latter as of writing. From a market structure perspective, the pair has achieved successive lower lows, opening the door for a bearish continuation. If the pair achieves a daily close above 1.2600, the pair could test last Friday’s high of 1.2654. Otherwise, the major would resume its downtrend toward the 1.2500 figure, followed by the 200-day Moving Average (DMA) at 1.2401.