GBP/USD extends slide toward 1.2500 as US dollar strengthens

• US dollar remains firm amid higher US bond yields.
• US data below expectations, eyes on Fed and BoE.
• GBP/USD turns negative after being rejected from 1.2600.

The GBP/USD broke under 1.2530 and dropped to 1.2505, reaching a fresh daily low. The pair remains near the lows, with a bearish tone amid a stronger US dollar across the board.

Cable is trimming half of Friday’s gains and a break under 1.2500 would increase the bearish pressure. The pound was rejected on Friday and again on Monday from above 1.2600, showing the main bearish trend still has momentum.

The US dollar rose across the board after the beginning of the American session despite weaker than expected economic data. The S&P Global and the ISM Manufacturing PMIs dropped came in below market consensus. The key report of the week will be on Friday with the Non-farm Payroll.

Higher US yields and risk aversion continues to boost the dollar. The US 10-year yield rose to 2.99% and the 30-year jumped to 3.05%. The DXY is up 0.40%, trading above 103.60. In Wall Street, the Dow Jones is falling 0.22% and the S&P drops 0.20% after falling sharply on Friday.

The key event ahead is the FOMC meeting. The Fed is expected to announce a 50 basis points rate hike on Wednesday. The statement and Chair Powell comments will likely trigger volatility.

The Bank of England will also have its monetary policy meeting. The consensus is for a 25bp rate hike. Analysts at Danske Bank expect the BoE to stick to its more dovish signals, although higher-than-projected inflation and rising inflation expectations increase the probability of a hawkish twist. “The Bank of England sounds concerned about the growth outlook and the BoE projected a rise in the unemployment rate eventually in the February 2022 Monetary Policy Report. If we are right, however, about the BoE sticking to its dovish signals, it is likely to weigh on GBP given the hawkish market pricing,” they explained.

Technical levels