Bullish view
- Buy the GBP/USD pair and set a take-profit at 1.2800.
- Add a stop-loss at 1.2700.
- Timeline: 1 day.
Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2700.
- Add a stop-loss at 1.2815.
The GBP/USD pair remained in a consolidation phase on Tuesday morning as the US bond yields surge continued. It also rose after some encouraging inflation estimates from the UK. The pair was trading at 1.2750, higher than this month’s low of 1.2618.
US bond yields continue rising
The US bond sell-off continued on Monday as US equities diverged. In stocks, the Dow Jones index dropped by 130 points while the Nasdaq 100 rose by 116 points. Yields of the 30-year and 10-year government bonds jumped to the highest level in years. The 10-year rose to 4.34% while the 30-year jumped to 4.46%.
Bond yields have been in a strong bullish trend in the past few weeks as investors raise their bets that the Fed will deliver another hike in September. Still, there are concerns about the US economy as mortgage rates soars to the highest level in more than a decade. The average mortgage rate has risen to over 7%.
Personal interest rates have also risen. For example, interest rates on vehicles have soared, leading to a slow increase in delinquencies., which has reached the highest point since 2006. The average monthly payment for a new car loans stands at $750 while interest rates have risen to 9.5%. Used car interest has risen to 13.7%.
The situation in the US could worsen in the coming months as millions of Americans restart paying back their student debts. Data shows that the average monthly student loan payment is $503.
The GBP/USD pair also reacted to some encouraging data from the UK. According to the ONS, core inflation has continued falling. The report showed that the figure dropped to 6.8% in July, lower than last week’s figure of 6.9%. Asking home prices have plunged to the lowest level since 2018.
GBP/USD technical analysis
The GBP/USD pair has held quite well in the past few days. It was trading at 1.2750 on Tuesday, a few points above last week’s low of 1.2686. On the 4H chart, the pair has moved above the 25-period and 50-period moving averages.
Most importantly, the pair stands at the descending trendline shown in green. It has also formed an inverted head and shoulders pattern. Therefore, the outlook for the pair is bullish, with the next price target being at 1.2800.
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