September 12, 2022 04:07 AM ET
By: AnalysisWatch
The GBP/USD pair is closing in on the 1.1600 mark on Monday, hitting a near two-week high in the first half of the European session. The pair is currently trading around the round figure of 1.1700 and is looking to consolidate its recent rebound from the lowest level since 1985, hit last week.
The U.S. dollar is extending its slide from a two-decade high and remains under intense selling pressure on the first day of a new week. In fact, the USD index, which measures the greenback's performance against a basket of currencies, is plunging to a new monthly low. This is proving to be a key factor in pushing the GBP/USD pair higher for the second day in a row.
Given that markets have already priced in a 75 basis point rate hike at the upcoming FOMC meeting on September 20-21, the generally positive tone of equity markets is weighing on the safe haven greenback. In addition, the current corrective decline in the dollar has no obvious fundamental catalyst and is likely to remain limited in an environment of high U.S. Treasury bond yields.
In addition, the deteriorating outlook for the UK economy could help limit further gains in the GBP/USD pair. Concerns were fueled by disappointing UK macroeconomic data released earlier on Monday. The U.K. Office for National Statistics reported that the economy grew by 0.2% in July, below consensus estimates of 0.5% growth.
In addition, the U.K.'s manufacturing output and total industrial production failed to meet expectations, coming in at 0.1% in July and -0.3%, respectively. This warrants caution before positioning for further gains. Despite this, the GBP/USD pair has now rallied nearly 300 pips from the 1.1400 area, a 35-year low reached last Wednesday, and remains vulnerable to dollar price momentum.
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