Title: GBP/USD sees downside below 1.2240 as investors turn cautious on US-China tensions

August 2, 2022 02:04 AM ET

By: AnalysisWatch

The GBP/USD pair gradually corrected to the vicinity of 1.2240 in early London trading after failing to reach Monday's high of 1.2293. The currency pair is likely to register losses if it falls below the immediate support of 1.2240 as market sentiment is getting nervous amid the escalation of tensions between the U.S. and China ahead of the arrival of U.S. Secretary of State Nancy Pelosi in Taiwan.

According to Reuters, some military activity by Chinese fighter jets has been observed near the centerline of the Taiwan Strait. In addition, China's General Administration of Customs has suddenly banned the import of more than 100 food products from Taiwan. According to Chinese media, such an event could cause serious damage to the country's food industry, agriculture, and fisheries.

In general, investors are focused on the Bank of England's (BOE) interest rate decision, which is due on Thursday. According to market expectations, BOE Governor Andrew Bailey will raise interest rates by 25 basis points (bps).

A less rapturous comment from the BOE will keep the pound bulls on their toes. Average hourly wages in the UK have continued to fall, leading to a decline in retail sales. Moreover, the disappointing employment data does not support the BOE's decision to raise interest rates without hesitation.

On the dollar front, the US Institute of Supply Management (ISM) services sector data will be in the spotlight on Wednesday. A preliminary estimate for the economic data came in at 53.5, well below the previous release of 55.3. The US ISM services index data for new orders should be watched closely as US tech companies lowered their forecasts for the rest of the year.