Comment: Sterling trend low remains a danger

Noram Lithium

29/08/2023 14:56

GBP/USD drifted lower, away from its NorAm open of 1.2590 and was eying lower
30-day Bolli support at 1.2562 and the Aug. 25 trend low at 1.2548, as U.S.
Treasury yields drifted slightly higher ahead of a slew of key U.S. data
culminating in non-farm payrolls on Friday.
    Despite a lofty UK rate advantage of 100bp by December 2024
 03SRA:  0#SON3: , GBP/USD remains on the backfoot as Fed rate expectations
remain buoyant after Friday's Jackson Hole speech by Fed Chair Jerome Powell and
front-end U.S.-UK rate expectations converge. 
    Though diminished summer liquidity issues tend to exacerbate FX moves, there
has been a marked move higher in Fed rate expectations as IRPR on Eikon now
indicates the U.S. rate peak at +18bp in November where earlier in August it was
seen at +5bp.
    Further out the SOFR strip, expectations for a first Fed rate cut have
migrated to July 2024 since Jackson Hole versus March in early August, eating
into sterling's yield advantage.
    Traders will lean on upcoming PCE and employment data to discern GBP/USD
direction.    
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GBP Chart:     https://tmsnrt.rs/3qQbr3S
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 (Paul Spirgel is a Reuters market analyst. The views expressed are his own)
 ((paul.spirgel@thomsonreuters.com))