- The GBP/USD prepares to finish the week with losses close to 1.80%.
- Worst than estimated, US manufacturing figures propelled the US dollar higher, a headwind for the GBP/USD.
- Investors start to price in a less aggressive Fed, as illustrated by US Treasury yields plunging more than ten bps.
The British pound trips below the 1.2000 mark, reaching a two-week low near 1.1975, after a US manufacturing report showed that, albeit expanding, the economy keeps hitting the brakes amidst growing concerns about a stagflation scenario. However, GBP/USD buyers reclaimed the figure, and at the time of writing, the GBP/USD is trading at 1.2055, down 0.98%.
Negative sentiment and US data showing that the economy is slowing bolstered the US dollar
Risk-off impulse witnessed by global equities sliding, increased appetite for safe-haven assets. The Institute for Supply Manufacturing reported that June’s Manufacturing index expanded to 53.0, lower than the 56.1 reported in May. Albeit showing that the economy stats in expansionary territory for the 25th month in a row, it’s slowing at the time that the Federal Reserve is front-loading aggressive rate hikes to the Federal funds rate (FFR).
Timothy R. Fiore, Chair of the Institute for Supply Management, commented on the report that the manufacturing sector is being “powered” by demand while has been “held back by supply chain constraints.” Furthermore, the employment index, despite contracting, shows progress, according to the survey. Prices eased for the third month in a row while new orders fell.
Meanwhile, an absent UK economic docket left GBP/USD traders adrift to US market data. The major reacted to the downside on the release, to fresh two-week lows, but of late, recovered some ground and has bounced close to 80 pips since.
In the bond market, US Treasury yields are plummeting, led by 2s, 5s, and 10s, tumbling more than ten basis points, as traders begin to price in a less aggressive US Federal Reserve. This means that financial analysts’ focus shifted towards growth amidst a time of aggressive rate hikes by worldwide central banks, which are fighting inflation levels at 40-year highs. Nevertheless, the above-mentioned shows that central banks are behind the curve and, if their scenario looks cloudy, are trying to tackle inflation without getting the economy into a recession.