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The Pound to Dollar exchange rate (GBP/USD) looks set to stay pressured over the remainder of the week.
The pound has recovered from its Tuesday lows against the Dollar, but it's telling that it's only managed to recapture less than half of the decline that was inspired by a UK bond rout.
Bond markets have since stabilised, and so too has Sterling, but those wanting a stronger GBP/USD would have hoped it could have recovered the full extent of Tuesday's declines in order to materially improve the technical setup and open the door to a move higher towards 1.3630.
Instead, the pair remains capped by the nine-day exponential moving average (EMA), which is pointing lower and confirming a near-term downtrend is intact.
The GBP/USD nevertheless finds some decent support that means the sellers aren't exactly having it all their way: it rebounded from the Tuesday lows at 1.3340, which coincided with a test of the 100-day EMA.
This is also where the graphical horizontal support at 1.3364 is to be found, confirming a convergence of support.
There is a good chance that upcoming price action involves a steady grind lower to retest this level. Those concerned about the direction of the exchange rate should consider locking in a portion of their payment now to protect their transfer budget.
"Further USD weakness is likely capped for now," says Shahab Jalinoos, Strategist at UBS, a view that underscores the GBP/USD setup we see on the charts.
For the USD to move lower, he thinks the 1y1y swap rate must truly move lower, or alternatively, the newsflow concerning the Federal Reserve's independence evolves materially in the coming days and upsets markets.
UBS expects global FX volatility to rest elsewhere (UK bond angst, French elections, Japanese political uncertainty), which is traditionally negative for external currencies and supportive of the USD.
Only when uncertainties are exclusively centred on the U.S. economy and domestic agenda (tariffs, Fed) does the U.S. Dollar tend to struggle. For now, much of the bad news on this front is in the price of the Greenback.
The major disruptor to USD exchange rate action will be Friday's non-farm payrolls report, as it will cement expectations for Federal Reserve policy over the coming months.
Investors are looking for the slowdown in the U.S. jobs market to have extended into August, with only 74K jobs being created in the month.
A much weaker figure could snap the selloff and help GBP/USD push sharply higher into the weekend, potentially snapping the dour action of recent days.
But should the figure be met, then there will be little reason to sell the dollar and GBP/USD can extend lower.
With sentiment towards the U.S. labour market already pretty dour, and Fed cuts richly priced, the balance of risks is to the upside, with USD proving more reflexive to a beat of expectations.
This leaves us wary of a positive surprise that further pressures GBP/USD and puts a durable break of 1.3350 on the horizon.