GBP/USD Suffers Dip as US Treasury Bond Yields Drive Dollar Rally

The GBP/USD failed, once again, to scale the 1.4000 resistance and has fallen to the 1.3900 area, indicating that Wednesday’s post-dovish FOMC monetary policy effect on the market has worn off. The decline is getting its drive by the broad recovery of the US dollar, which is getting boosted by soaring US bond yields.

The GBP/USD has gotten rejected from the 1.4000 resistance for the fifth time this month, and we could see bears move in to drive the price to the 1.3800 area.

The rallying US government bond yields are the primary factor behind the decline GBP/USD on Thursday; nominal US 10-year yields have risen by more than 11 base points to take the asset above 1.75%, fresh cycle highs.

Meanwhile, the UK government bond yields also saw a rally today, although not as substantial as the US’ with the nominal UK 10-year yield up by six base points. This disparity means that the US/UK rate advantage has expanded, which is bearish for the GBP/USD.

Excerpts from the BoE Monetary Policy
As anticipated, the Bank of England (BoE) kept its rate unchanged at 0.1% and maintained its QE program with a total of £895 billion, as the Committee reaffirmed its commitment to complete another £150 billion in asset purchases by the end of 2021.

 

In its monetary policy statement, the BoE noted that its current policy stance was appropriate and that news of plans to reopen the economy aligned with a slightly stronger economic outlook. However, the bank restated that it will not tighten its policy until undeniable progress towards eliminating spare capacity can be seen, and it achieves its 2.0% inflation target.

 

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