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GBPUSD stays on the defensive despite a minor USD increase and maintains a position above 1.1300
GBPUSD opens with a little negative gap, but lacks sufficient selling momentum. The USD is supported by elevated US bond yields and a milder risk tone, which act as a headwind. The dollar is supported by the diminishing likelihood of aggressive Fed rate hikes.
The GBPUSD pair struggles to capitalize on Friday's impressive rebound from a two-week low and enters the new week with a slight negative gap. Spot prices, however, manage to maintain above 1.1300 throughout the early North American session and continue to be subject to the price dynamics of the US Dollar.
Concerns about headwinds emanating from China's determination to continue its economically damaging zero-COVID policy make investors wary. Together with the rising US Treasury bond yields, this stimulates USD demand and exerts some downward pressure on the GBPUSD pair. However, decreased likelihood of another massive 75 basis point Fed rate hike in December cap any additional gains for the dollar and provide some support for the major.
Contrary to forecasts, the US economy added 261K jobs in October, according to the highly monitored NFP. This was significantly lower than the previous month's upwardly corrected figure of 315K. In addition, the unemployment rate increased to 3.7% from 3.5% in September, and average hourly earnings slowed from 5% to 4.7% year-over-year in October. The mixed findings encouraged rumors that the Fed may delay the rate of future interest rate increases.
Charles Evans, president of the Chicago Fed, added that it is time for the US central bank to transition to modest rate hikes to avoid excessively tightening policy. Consequently, USD bulls should exercise prudence before initiating aggressive bearish wagers on the GBPUSD pair. In the aftermath of the Bank of England's dovish interest rate hike last Thursday, the upside potential for spot prices remains restricted, at least for the time being.
It is important to recall that the United Kingdom's central bank opted to hike interest rates by 75 basis points - its most strong action since 1989 to combat inflation. In the accompanying policy statement, the BoE stated that it anticipates a recession to extend for the all of 2023 and the first part of 2024, while also implying a lower peak than is currently priced into the markets. This may continue to weigh on the Pound and limit the GBP/USD pair in the absence of important macroeconomic updates.
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