GBPUSD fades post-Fed recovery ahead of BoE rate cut

A “turnaround Thursday” appears brewing amid the Asian session as traders consolidate the previous moves amid dicey markets. Even so, the cautious optimism and latest dovish bias about the US Federal Reserve (Fed) challenge the US Dollar’s corrective bounce. That said, risk-news flash mixed signals and challenge the commodities, as well as the Antipodeans.

It should be observed that the Fed’s dovish halt joined downbeat US employment clues to weigh on the Greenback and yields the previous day. This allowed equities to end the July month on a positive side despite losing bullish charm in the last few days.

Against this backdrop, the US Dollar Index (DXY) rebounds from the lowest level in a fortnight after declining the most in two weeks the previous day. The same challenges EURUSD rebound while GBPUSD pares the post-Fed rebound. USDJPY, however, remains on the back foot at the lowest level since mid-March.

AUDUSD reverses Wednesday’s recovery from a three-month low whereas NZDUSD pauses the two-day winning streak. Further, USDCAD pares the biggest daily fall in a month while challenging the two-day pullback from the yearly high.

Crude Oil edges higher after rising the most since late 2023 while Gold price lacks upside momentum after jumping to a two-week top.

Elsewhere, BTCUSD and ETHUSD ignore the US Dollar’s weakness and heavy inflows while extending the earlier losses toward refreshing the weekly lows. With this, cryptocurrencies are mostly bearing the burden of fresh doubts about Donald Trump’s victory in the US Presidential Elections. Also justifying the latest pullback in the Bitcoin and Ethereum prices is the consolidation of the previous rally backed by the ETF launch optimism.

Following are the latest moves of the key assets:

• WTI Crude oil prints mild gains around $78.60 as it seesaws at a one-week high after rising the most since October 2023 the previous day.
• Gold struggles for clear directions around $2,450, the highest level in two weeks, following a two-day advance.
• The USD Index licks its wounds at the lowest level in a fortnight, challenging the two-day losing streak around 104.10.
• Wall Street closed with mild gains but the Asia-Pacific shares edged lower. Further, equities in Britain and Europe trade mixed during the initial trading hour.
• BTCUSD and ETHUSD both print mild intraday losses around $64,200 and $3,180 at the latest.

Fed’s dovish halt drowned US Dollar, yields…

On Wednesday, the Federal Open Market Committee (FOMC) left the benchmark interest rate unchanged, as expected, and kept the tone of the Fed Monetary Policy Statement mostly intact. However, a shift in Fed Chairman Jerome Powell’s tone during the press conference gained major attention as the US central banker didn’t push back the market’s concerns for multiple rate cuts from the Fed starting in September.

This allowed the traders to place bets on three rate cuts in 2024 versus the two expected previously, with the September rate cut mostly priced in. Additionally, market players also expect around 72 basis points (bps) of reductions in the benchmark Fed rates during the current year, versus nearly 67 previously.

With this, the US Dollar Index (DXY) marked the biggest daily fall in a fortnight while refreshing the weekly low. On the same line, the US 10-year and 2-year Treasury bond yields also slumped and tested the lowest level since February while the 30-year counterpart formed a five-month bottom.

The US Dollar’s slump joined upbeat EU inflation clues to help EURUSD recover from the 200-day Exponential Moving Average (EMA).

On the same line, GBPUSD also snapped a two-day losing streak and closed with minor gains even as the Bank of England (BoE) is widely anticipated to cut the benchmark rates by 0.25% in today’s monetary policy meeting. It should be noted that the BoE’s dislike for successive rate cuts seems to defend the Cable buyers despite witnessing mild intraday losses.

USDJPY marked the biggest daily slump in three months on the FOMC day and refreshed a 4.5-month low early Thursday as the Fed’s dovish halt precedes data/statements from Japan suggesting more efforts to defend the Yen. Also weighing on the Yen pair could be the downbeat yields and hawkish concerns about the Bank of Japan.

AUDUSD recovered from a three-month low on the Fed’s dovish halt but retreated afterward amid mixed headlines from China and the risk-negative news from the Middle East, not to forget unimpressive Aussie PMI and trade data. Further, NZDUSD traces the Aussie pair while pausing a two-day winning streak amid mixed sentiment and challenges for the Antipodeans.

Moving on, USDCAD bears take a breather after falling the most in a month. The Loonie pair’s declines could be linked to the broad US Dollar weakness, upbeat prices of Canada’s main export item Crude Oil, and upbeat Canada GDP data for May.

Regarding the risk catalysts, the Vice Head of China’s state planner, the National Development and Reform Commission of the People's Republic of China (NDRC), said they will actively expand domestic demand, putting consumption boost in a more striking position.

Also acting as the risk-positive news was data from Mastercard suggesting “continued healthy customer spending”.

However, the same failed to help commodities and Antipodeans defend the post-Fed rebound as downbeat prints of China’s Caixin Manufacturing PMI for July and rising geopolitical tensions in the Middle East helped the Greenback to lick its wounds.

Also challenging the riskier assets was the news from China’s Henan province suggesting a merger of 25 indebted and feeble local banks. Furthermore, Iran’s order to strike Israel directly in response to Haniyeh assassination and Israel’s readiness to fight exerted additional downside pressure on the risk profile but allowed Crude Oil prices to remain firmer amid supply-crunch woes.

It’s worth noting that the US Dollar’s weakness joined the Middle East's woes to supersede the lesser-than-expected US Oil inventory draw to propel the WTI Crude Oil the most in since October 2023.

Not only the crude oil but the Gold price also cheered the softer USD, Treasury bond yields and the market’s indecision while rising the most in a fortnight. The precious metal, however, lacks the upside momentum at the highest level in two weeks by the press time as traders await the key US activity and employment clues to confirm the Fed’s three rate hikes.

• Strong buy: USDCAD, USDJPY, US Dollar, Silver
• Strong sell: AUDUSD, NZDUSD, GBPUSD
• Buy: BTCUSD, ETHUSD, Nasdaq, Gold, DJI30, USDCNH
• Sell: DAX, FTSE 100, EURUSD, Crude Oil

BOE will precede multiple US activity, employment clues to fuel momentum…

Although the markets are in consolidation mode early Thursday, momentum traders will have another rollercoaster day ahead. The same highlights the possibility of witnessing a “turnaround Thursday” if the scheduled data/events challenge the preconceived notion about the Fed and the risk complex.

That said, the final readings of German and Eurozone PMIs will initially direct the EURUSD pair ahead of the US Weekly Jobless Claims, ISM Manufacturing for July, and the quarterly readings of the Nonfarm Productivity and the Unit Labor Cost. Also important to watch will be the Bank of England’s (BoE) Monetary Policy Announcements, which in turn highlight GBPUSD as today’s key currency pair.

The BoE is widely anticipated to cut the benchmark rates by 0.25% in today’s meeting and can cite the grim economic conditions to weigh on the GBPUSD pair. However, the policymakers’ rejection of further rate cuts and upbeat economic forecasts might save the Cable pair despite the rate cut.

Also likely to save the Pound Sterling are downbeat forecasts from the US ISM PMI and employment clues, which if proved right can exert additional downside pressure on the Greenback. That said, any surprise positives from the US won’t be taken lightly and can allow the US Dollar to reverse the previous day’s losses, especially ahead of Friday’s US Nonfarm Payrolls (NFP).

Hence, traders should remain cautious and keep their eyes on the GBPUSD pair for intraday momentum while also bracing for a consolidation move in the US Dollar.

May the trading luck be with you!