GBP/USD Pauses Downward Trend Amid US Labor Data Focus

The British Pound is experiencing a modest recovery against the US Dollar, but it remains down 0.14% at around 1.3235 in Tuesday's European session.

This comes as the US Dollar Index (DXY) eases from a fresh two-month high of 101.50 to approximately 101.35.

Despite this intraday softening, market participants continue to see a strong USD backdrop due to expectations that the Federal Reserve will extend its rate hiking cycle over the coming year.

Analysts at MUFG/BTMU note that the US rates market is now discounting almost another 100bps of rate hikes in the year ahead, reinforcing support for the USD from the positive terms of trade shock for the US economy from higher energy prices.