British Pound holds narrow range against the US Dollar ahead of second quarter GDP data, with Scotiabank strategists flagging mixed signals for the currency pair. Shaun Osborne and Eric Theoret note the Pound is showing modest strength following slightly improved PMI readings, but warn the fundamental outlook is deteriorating. Two-year yield spreads between UK and US bonds have surrendered gains accumulated since late June, undermining support for Sterling. The reversal in rate differentials suggests diminishing expectations for Bank of England policy divergence from the Federal Reserve, a key driver that previously supported the Pound. Traders are now focused on upcoming GDP figures that could determine whether the currency breaks out of its current trading range or extends consolidation. The mixed technical and fundamental picture leaves GBP/USD vulnerable to volatility around the data release.
FXnCO Insight
Monitor two-year yield spreads closely as their continued erosion signals weakening Pound momentum regardless of short-term PMI improvements, with GDP data likely the catalyst for directional moves.
Source: FXStreet