GBP/USD Holds Steady Above 1.2700 Amid UK Gilt Yield Boost
During the European trading hours on Thursday, GBP/USD managed to hold onto slight daily gains above 1.2700. The rise in UK gilt yields contributed to the resilience of Pound Sterling against the US Dollar (USD) as investors awaited high-tier data releases from the US.
On Wednesday, the shift in risk sentiment negatively impacted GBP/USD, leading to a decline by the end of the day. However, the UK Debt Management Office conducted a successful auction of government bonds, selling £4 billion ($5.08 billion) that will yield an annual return of 5.668% - the highest since 2007. These bonds will mature in October 2025. Consequently, the 2-year UK gilt yield reached its highest level since 2008, reaching approximately 5.5%. This development provided support to GBP and helped limit the losses of GBP/USD.
In the early hours of Thursday, Bank of England (BoE) Governor Andrew Bailey stated in a BBC interview that he anticipates a notable decrease in inflation but refrained from commenting on the rate outlook. The results of the BoE's monthly Decision Maker Panel (DMP) revealed that UK businesses project a lower year-ahead Consumer Price Index (CPI) inflation rate of 5.7% in June compared to the May estimate of 5.9%.
Later in the day, market participants will closely monitor the June ADP Employment Change and May JOLTS Job Openings data from the US. Following a 25 basis points rate hike in July, there is still skepticism among investors about the Federal Reserve's intentions to continue raising rates throughout the year. FOMC Chairman Jerome Powell has expressed that a robust labor market will support their decision to tighten policy further. Therefore, if the data indicate a noticeable decline in private sector employment and the number of available jobs, the USD could face renewed selling pressure.
On Wednesday, the shift in risk sentiment negatively impacted GBP/USD, leading to a decline by the end of the day. However, the UK Debt Management Office conducted a successful auction of government bonds, selling £4 billion ($5.08 billion) that will yield an annual return of 5.668% - the highest since 2007. These bonds will mature in October 2025. Consequently, the 2-year UK gilt yield reached its highest level since 2008, reaching approximately 5.5%. This development provided support to GBP and helped limit the losses of GBP/USD.
In the early hours of Thursday, Bank of England (BoE) Governor Andrew Bailey stated in a BBC interview that he anticipates a notable decrease in inflation but refrained from commenting on the rate outlook. The results of the BoE's monthly Decision Maker Panel (DMP) revealed that UK businesses project a lower year-ahead Consumer Price Index (CPI) inflation rate of 5.7% in June compared to the May estimate of 5.9%.
Later in the day, market participants will closely monitor the June ADP Employment Change and May JOLTS Job Openings data from the US. Following a 25 basis points rate hike in July, there is still skepticism among investors about the Federal Reserve's intentions to continue raising rates throughout the year. FOMC Chairman Jerome Powell has expressed that a robust labor market will support their decision to tighten policy further. Therefore, if the data indicate a noticeable decline in private sector employment and the number of available jobs, the USD could face renewed selling pressure.
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