US Dollar Safe-Haven Status Gets Under Threat

The GBP/USD currency pair started its trade on Wednesday with an averagely positive bias throughout the early part of the European session. It was observed to hover close to the daily high point, which is just beneath mid-1.2300.

GBP/USD price chart. Source TradingView

The current slide of retracement going on with the Treasury bond yields of the US, as well as the generally goodish tone in the stock market, are undermining the US Dollar’s safe-haven status. This aided the GBP/USD pair in gaining some purchases to itself close to the 1.2300 mark early on Wednesday.

That said, it still looks elusive that there would be any meaningful increase for the pair. This then calls for some caution on the side of buyers before placing bullish bets.

The National Institute of Economic and Social Research which is the United Kingdom’s economic think tank said the country is entering a recession. According to the institute, the entire British economic system is on a steady course into a technical downturn in the third quarter of the year. The institute has now forecasted that the Gross Domestic Product of the United Kingdom will plummet by 0.2% in the third quarter and by 0.4% in the fourth quarter of the year.

Gloom in BOE Policy Outlook

All this resulted from the unexciting outlook of the economy by the Bank of England. It is then set to serve as a headwind to hinder the growth of the British Pound Sterling.

Aside from all these, further expectations that the US Federal Reserve would have to embark on more confrontational moves to fight inflation should reduce losses for the US Dollar. More drastic measures would aid the Dollar, as thought, as well as cap gains for the GBP/USD currency pair.

As a matter of fact, there is still continuous pricing in of another 200 basis points interest rate increases for the remaining part of this year. This comes, yet, in the midst of concerns over the tightening in the global supply chain system as a result of the COVID crisis in China. China is implementing a zero-COVID policy with lockdowns and business closures.

The war in Ukraine is another factor influencing the supply chain system, which extends to the GBP/USD pair. Therefore, attention will now be fixed on the expected publication of the latest consumer price index numbers from the US. The publications are due to be ready later in the North American session.

Data from the consumer price index might give indications of how aggressively the Federal Reserve could tighten its policy. This would then be influential on the short-term price dynamics of the US Dollar. It would also give a new directional momentum to the GBP/USD currency pair.