GBP/USD drops to 1.3900 as USD gathers strength on hawkish Fed commentary

The GBP/USD pair rose to a daily high of 1.3958 in the early trading hours of the American session but failed to preserve its bullish momentum. With t  |  04/08/2021 16:30
  • GBP/USD lost its traction after rising above 1.3950.
  • US Dollar Index staged a decisive rebound following a decline below 92.00.
  • Hawkish comments from Fed's Clarida seem to be providing a boost to the USD.

The GBP/USD pair rose to a daily high of 1.3958 in the early trading hours of the American session but failed to preserve its bullish momentum. With the greenback regathering its strength, the pair reversed its direction and was last seen posting small daily losses at 1.3901.

DXY erases ADP-inspired losses

Earlier in the day, the disappointing labour market data from the US weighed on the USD. The Automatic Data Processing (ADP) Research Institute reported on Wednesday that the private sector employment increased by 330,000 in July, missing analysts' estimate of 692,000 by a wide margin.

Although the US Dollar Index (DXY) declined to a daily low of 91.90 after the ADP data, hawkish comments by Fed Vice Chair Richard Clarida helped it regain its traction.

Clarida noted that he can certainly see the Fed announcing tapering later in the year and added that he expects conditions for the Fed to start raising interest rates toward the end of 2022. Currently, the DXY is up 0.25% on the day at 92.30.

On Thursday, the Bank of England (BoE) will announce its monetary policy decisions. Previewing this event, "a dovish decision that would consist of uncertainty and pledges to support the economy is not fully priced in," noted FXStreet analyst Yohay Elam. "There are good reasons for the BOE to convey a cautious message on its August "Super Thursday." That would weigh on GBP/USD but probably not for too long."

Bank of England Preview: Five reasons the doves are set to win Super Thursday, GBP/USD may dip.

Technical levels to watch for

 

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