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The GBP/USD pair experienced a sharp drop in the North American session following robust US data, highlighting the case for additional Federal Reserve tightening and higher Treasury bond yields. The upward revision of US GDP and a drop in Initial Jobless Claims suggest a bright US economic picture, triggering the GBP/USD tumble.
The dollar is the primary driver of the session, with data surprising market participants. The US Gross Domestic Product was revised upwards to a 2% YoY advance, above estimates of 1.3%. Initial Jobless Claims dropped the most in 20 months to 239K, below estimates of 265K, which could trigger another hike by the Fed to cool demand.
After the data release, the GBP/USD tumbled from around 1.2660 towards the 1.2600 figure, extending its fall to a new two-week low of 12590. The buck strengthened as well as the US Treasury bond yields, with the 10-year benchmark note rate yielding 3.846%, gaining 14 basis points. Fed Chair Jerome Powell expressed the labor market remains tight, inflation too high, and expressed the Fed’s “long way to go” before inflation gets back to its 2% target.
The UK economic agenda will feature GDP for Q1 2023, the Current Account, and Business Investment. The US Bureau of Economic Analysis (BEA) will feature the Fed’s preferred gauge for inflation, the core Personal Consumption Expenditure (PCE). The University of Michigan will also reveal Consumer Sentiment, while the Chicago Fed will release its PMI.
