GBP/USD ignores hawkish BOE bets around 1.1800, US data, Jackson Hole eyed

• GBP/USD reverses the bounce off 2.5-year low, pressured around intraday bottom.
• Money market bets hint at 4.0% BOE rate in March, from 1.75% currently.
• UK data appeared comparatively better than the US ones but Sunak’s defense of BOE appear to favor bears.
• Recession woes, hawkish Fedspeak adds strength to the downside bias.

GBP/USD holds lower ground near 1.1800 during early Wednesday morning in Europe, following a failed attempt to recover from the yearly low the previous day. In doing so, the cable pair traces the broad US dollar strength while paying a little heed to the hawkish market bets on the Bank of England’s (BOE) next move.

“The money markets are pricing in the likelihood that the base rate, which currently stands at 1.75 percent, will have reached about 4 percent by March, according to data compiled by Refinitiv,” reported The UK Times. The news also adds that the money market bets mark a sharp readjustment of the market’s rate expectations as inflation continues to surge.

It should be noted that the UK’s preliminary readings of August month PMIs flashed mixed readings as the Manufacturing gauge slumped to 46.00 versus 51.1 forecasts and 52.1 prior while the Services PMI improved to 52.5 versus 52.0 expected and July’s final score of 52.6.

Also, the latest survey results from the Confederation of British Industry (CBI) of trends in British manufacturing showed that the Manufacturing Order Book Balance dropped to -7 in August, the first negative reading since April 2021, from +8 in July and +3 of market expectations.

Elsewhere the comments from ex-Chancellor Rishi Sunak, suggesting less push for the Bank of England (BOE) seemed to have eased the pressure off the GBP/USD and seemed to have favored sellers of late. “Rishi Sunak has suggested that Liz Truss would "spook" international investors if she threatened the independence of the Bank of England,” per The Guardian.

On the other hand, traders in fed funds futures are pricing in a 52.5% chance of a 75 basis-point (bps) rate hike at the Fed meeting next month. On Monday the odds favored a slightly better-than-even chance of a 50 bp hike in September, per Reuters.

Recently, Minneapolis Fed President Neel Kashkari mentioned that the biggest fear is that we are misreading underlying inflation dynamics, per Reuters. The policymaker also added that the Fed can relax on rate hikes when compelling evidence of CPI heading toward 2% is seen. Comments from Fed’s Kashkari tamed concerns that Fed Chair Powell would go slow on rate hikes while speaking at the Jackson Hole on Friday, as backed by Goldman Sachs.

On Tuesday, preliminary readings of the US S&P Global Manufacturing PMI for August eased to 51.3 versus 52.0 expected and 52.2 prior while the Services gauge plunged to 44.1 from 47.3, compared to 49.2 market forecasts. According to S&P Global, the US economy is also in trouble as the Composite PMI shrank to 45, its lowest in 27 months. Furthermore, the US New Home Sales for July dropped to the lowest levels in six years, to 0.511M from 0.585M prior and 0.575M market forecasts. Furthermore, the US Richmond Fed Manufacturing Index for August dropped to -8.0 compared to the 0.0 previous reading.

Against this backdrop, US 10-year Treasury yields remain mostly steady around 3.05%, after rising to the highest in a month the previous day. That said, Wall Street benchmarks closed with mild gains and directed the S&P 500 Futures to follow the path by the press time.

Looking forward, a light calendar may restrict GBP/USD moves ahead of the US Durable Goods Orders for July, expected 0.6% versus 2.0% prior. However, major attention should be given to Friday’s speech by Fed Chairman Jerome Powell at the Kansas City Fed’s symposium in Jackson Hole.

Technical analysis

GBP/USD approaches 1.1790 before challenging the latest lows near 1.1720-15. Following that, the weekly channel’s support line and the lower line of the longer-term trend channel, respectively near 1.1660 and 1.1615, will be crucial supports to watch during the GBP/USD pair’s further weakness. Meanwhile, upside momentum remains elusive until the quote stays below the 1.2200 hurdle, comprising the upper line of the downward sloping trend channel from mid-May.