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18.01.2022 15:24

GBP/USD bounces off one-week low, flat-lined below mid-1.3600s post-UK jobs data

  • GBP/USD attracted some dip-buying on Tuesday and reversed the early downtick to a one-week low.
  • An unexpected fall in the UK unemployment rate, BoE rate hike bets acted as a tailwind for sterling.
  • Surging US bond yields underpinned the USD and capped gains amid the recent UK political drama.

The GBP/USD pair reversed an intraday dip to a one-week low and held steady in the neutral territory, just below mid-1.3600s following the release of the UK employment details.

The pair extended last week's rejection slide from the very important 200-day SMA and edged lower during the early part of the trading on Tuesday amid sustained US dollar buying interest. A continual surge in the US Treasury bond yields – bolstered by the prospects for a faster policy tightening by the Fed – turned out to be a key factor that continued underpinning the greenback.

In fact, the yield on the benchmark 10-year US government bond shot to the highest level since January 2022 amid growing acceptance that the Fed would start raising interest rates in March 2022. Apart from this, a generally weaker tone around the equity markets further benefitted the greenback's safe-haven status and dragged the GBP/USD pair to a one-week low, around the 1.3620 area.

That said, hopes that the Omicron outbreak won't derail the UK economy, along with rising bets for additional rate hikes by the Bank of England acted as a tailwind for the British pound. Apart from this, an unexpected dip in the UK unemployment rate, to 4.1% during the three months to November assisted the GBP/USD pair to attract some dip-buying at lower levels.

The attempted recovery, however, lacked follow-through amid the latest political development in the United Kingdom. The calls for UK Prime Minister Boris Johnson to resign are rising from within the Conservative party after an admission that he attended a lockdown-breaching party in May 2020. This, in turn, should hold back traders from placing bullish bets around the GBP/USD pair.

Traders now look forward to the release of the US economic docket, featuring the release of the Empire State Manufacturing Index for some impetus later during the early North American session. The focus, however, will remain on the upcoming FOMC policy meeting on January 25-26, which will help determine the next leg of a directional move for the GBP/USD pair.

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