Title: GBP/USD rebounds from yearly low towards 1.1800 ahead of UK/US PMIs
August 23, 2022 12:01 AM ET
The GBP/USD pair is licking its wounds as it approaches 1.1780, after retesting the 29-month low the previous day. In doing so, the cable pair is benefiting from the increasing likelihood of a UK/Eurozone agreement on the Northern Ireland Protocol (NIP) and a decline in US Treasury yields. The stock rebound is also being helped by cautious optimism ahead of preliminary UK and US PMI readings for August.
The UK government's plan to tear up part of its Brexit deal with the EU and unilaterally replace the Northern Ireland protocol will create a "myriad" of new problems, business leaders have warned, according to The Independent. The Northern Ireland Business Brexit Working Group, which includes Logistics UK, CBI NI and Manufacturing NI, also said that rising inflation indicates an "urgent" need for compromise with Brussels.
The U.S. dollar index (DXY), on the other hand, is retreating from the monthly high, down 0.08% intraday near 108.87 at the latest. With that, the greenback's gauge against the six major currencies is tracking U.S. Treasury yields, with coupons on the benchmark 10-year bond falling two basis points (bps) to 3.02% at the latest.
It is worth noting that the DXY hit a six-week high the day before and has been printing a four-day bullish trend amid recession fears and increasing hawkish bets from the Fed. The U.S. dollar excelled after the Chicago Fed's national activity index improved to 0.27 in July from a previous downwardly revised -0.25.
On Monday, fed funds futures were forecasting a 54.5 percent probability of a 50 basis point (bp) rate hike at the Fed's policy meeting next month. Reuters reported following the latest market data that "the fed funds rate is expected to rise to about 3.6 percent by the end of the year, peaking at nearly 3.8 percent in March 2023