GBP/USD: Two-year yield spread ignores less hawkish Carney, dips to be short lived?

GBP/USD pair dropped nearly 1% on Monday to an intraday low of 1.3465 after Bank of England [BOE] Governor Mark Carney said any increases in UK interest rates in the coming months will be "gradual" and "limited".

However, the two-year US-UK government bond yield spread is not buying Carney's less hawkish talk.

Spread chart

• The chart above shows head and shoulders topping pattern, which indicates the spread could narrow further in favor of the British Pound.
• Despite Carney's less hawkish comments, the two-year yield spread remained largely unchanged at 96-97 basis points.
• The two-year yields are sensitive to the short-term rate hike expectations, thus resilient two-year yield spread could be an indication that markets are not buying Carney's gradual rate hike call, hence the dip in the GBP/USD could be short lived.
• The UK economic calendar is thin, thus focus remains on the bond yield differential. Across the pond, housing data, current account number and export and import price index could influence the demand for the US dollar.

GBP/USD Technical Levels

FXStreet Chief Analyst Valeria Bednarik writes-

"From a technical point of view, the pair has broken below the 23.6% retracement of the BOE-linked rally from late last week, with a strong support now at 1.3440, in where the pair has the 38.2% retracement of the same rally, and a bullish 20 SMA in the 4 hours chart. In the same chart, technical indicators head sharply lower within positive territory, correcting extreme overbought readings, and supporting additional slides on a break below the mentioned Fibonacci support."