GBP/USD Bears Strengthen, European Morning Sees Decline to 1.24
Yesterday, the GBP/USD currency pair experienced a pullback at the 50% Fibonacci level, marking the beginning of a new bearish trend. As the downtrend unfolds, the next potential target for the GBP lies around the support area of 1.23400. On the fundamental front, the GBP/USD pair encountered renewed bearish pressure during the European morning, causing it to decline towards the 1.2400 level after a relatively quiet Asian session. This downward movement can be attributed to a shift in risk sentiment, which is favoring the US Dollar (USD) and could continue to influence the pair's performance in the absence of significant high-tier data releases.
Looking back at Monday's market dynamics, the USD struggled to build on the gains it made on Friday, mainly due to the impact of the Institute for Supply Management's (ISM) Services Purchasing Managers' Index (PMI) report. The report led market participants to lean towards the view that the Federal Reserve (Fed) would not make any changes to its policy rate in June.
The headline Services PMI registered a decline from 51.9 in April to 50.3. Of particular significance was the drop in the Prices Paid Index, which fell from 59.6 to 56.2, indicating a softening in input inflation. Furthermore, the Employment Index dropped below 50, indicating a contraction in service sector employment.
As of the time of writing, the CME Group FedWatch Tool indicates that the market is pricing in an approximately 80% probability of the Fed maintaining the policy rate within the range of 5-5.25% at the upcoming policy meeting on June 13-14.
In the broader market context, the UK's FTSE 100 Index is currently down 0.3% in the early European session, while US stock index futures are experiencing losses ranging between 0.1% and 0.2%. If safe-haven flows dominate the financial markets in the latter half of the day, the USD is expected to maintain its strength, thus exerting downward pressure on the GBP/USD pair. Conversely, a shift away from risk aversion could reverse this dynamic.
Looking back at Monday's market dynamics, the USD struggled to build on the gains it made on Friday, mainly due to the impact of the Institute for Supply Management's (ISM) Services Purchasing Managers' Index (PMI) report. The report led market participants to lean towards the view that the Federal Reserve (Fed) would not make any changes to its policy rate in June.
The headline Services PMI registered a decline from 51.9 in April to 50.3. Of particular significance was the drop in the Prices Paid Index, which fell from 59.6 to 56.2, indicating a softening in input inflation. Furthermore, the Employment Index dropped below 50, indicating a contraction in service sector employment.
As of the time of writing, the CME Group FedWatch Tool indicates that the market is pricing in an approximately 80% probability of the Fed maintaining the policy rate within the range of 5-5.25% at the upcoming policy meeting on June 13-14.
In the broader market context, the UK's FTSE 100 Index is currently down 0.3% in the early European session, while US stock index futures are experiencing losses ranging between 0.1% and 0.2%. If safe-haven flows dominate the financial markets in the latter half of the day, the USD is expected to maintain its strength, thus exerting downward pressure on the GBP/USD pair. Conversely, a shift away from risk aversion could reverse this dynamic.
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