Pound Drops From Peak as Firm Dollar and Yields Persist

Key Moments

GBP Weakens as Recent Rally Fades

The GBP/USD pair moves lower in Asian trading on Thursday, extending the decline from levels above 1.3300 that were reached the previous day, marking a one-week high. The pair is currently holding just above the mid-1.3200 area, as a set of conflicting fundamental drivers encourages caution among traders and discourages aggressive positioning in either direction.

UK Growth Revision Supports BoE Hike Outlook

The British Pound finds some underlying support after UK second-quarter GDP growth was revised higher to 0.4%. This revision reinforces market expectations that the Bank of England will deliver a 25-basis-point interest rate increase at its upcoming policy meeting on November 5.

In contrast, US Personal Consumption Expenditures (PCE) data released on Wednesday has scaled back expectations for a Federal Reserve rate increase in October. This divergence in policy expectations offers some support to GBP/USD, even as broader US Dollar strength limits any sustained upside in the pair.

Dollar Firm on Yield Advantage and Geopolitical Jitters

Data from CME Group’s FedWatch Tool shows that market participants are still assigning roughly an 87% probability that the Federal Reserve will raise interest rates by the end of this year. At the same time, concerns that higher oil prices could stoke inflation continue to underpin US Treasury yields, which remain close to multi-year highs.

These elevated yields, alongside ongoing geopolitical tensions linked to the US-Iran standoff, are supporting safe-haven demand for the Greenback. As a result, the USD is holding near a two-month high, creating a challenging backdrop for GBP/USD buyers and reinforcing the need for prudence on the long side.

Data and Event Calendar: Focus on US Labor Market

Attention now turns to the upcoming US data releases, including the regular Weekly Initial Jobless Claims figures and the ISM Manufacturing PMI. In addition, remarks from several influential Federal Open Market Committee members, together with any new developments related to the crisis in the Middle East, are expected to influence USD price action.

The primary event risk, however, remains the US Nonfarm Payrolls report scheduled for Friday. The outcome of the NFP release is expected to play a decisive role in shaping the near-term trajectory of the US Dollar and, by extension, could provide clearer direction for the GBP/USD pair.

Technical Picture: Bias Remains Tilted to the Downside

From a technical standpoint, GBP/USD maintains a negative short-term setup after failing overnight to sustain a move above the 23.6% Fibonacci retracement of the August-September downside move. The presence of successive resistance levels at 1.3383 and 1.3439 continues to underscore a bearish bias, with the pair consolidating closer to the lower boundary of its recent trading band.

A daily close above these resistance zones would be needed to alleviate the prevailing downward pressure. On the downside, the structural anchor of the current move at 1.3203 serves as initial support. A clear break below this level would open the door to fresh lows within the ongoing bearish phase.