- GBP/USD has dropped sharply to near 1.2480 amid a recovery move by the USD Index and the risk-off market mood.
- Investors are shifting their focus on interest rate guidance from the Federal Reserve as a 25bp rate hike is widely anticipated.
- The street is anticipating one more 25 bps rate hike from the Bank of England to continue pressure on UK’s stubborn inflation.
- GBP/USD has been consolidating in a wide range of 1.2347-1.2545 for the past three weeks.
The GBP/USD pair has dropped after failing to sustain above the psychological resistance of 1.2500 in the early European session. The Cable has sensed selling pressure as the US Dollar Index (DXY) is aiming to extend its recovery above 101.33 also negative market sentiment is weighing on risk-sensitive assets.
The USD Index rebounded sharply from 101.20 as investors are getting anxious ahead of the release of the United States Gross Domestic Product (GDP) data, which will release on Thursday. Also, investors are anticipating that the sticky US core Consumer Price Index (CPI) could force the Federal Reserve (Fed) to remain hawkish on interest rate guidance.
Meanwhile, S&P500 futures are consistently adding losses in the overnight session as the street is worried over quarterly results from giant technology stocks. The week is going to be pretty busy as three FAANG stocks will report their quarterly results. Meta Platforms (Facebook), Amazon, and Google. Also, Microsoft will come forward with quarterly earnings and revenue guidance.
US data to provide more clarity on Federal Reserve policy
Volatility in tradeable markets is expected to remain quite high ahead as investors are shifting their focus toward the interest rate policy from the Federal Reserve, which is due next week. Federal Reserve (Fed) chair Jerome Powell is expected to announce a consecutive 25 basis point (bp) interest rate hike and will push rates above 5%. However, the event that will grab major attention will be the interest rate guidance from the Federal Reserve (Fed).
Considering the fact that the labor market conditions are getting softer, credit conditions from US commercial banks are getting tightened, and Producer Price Index (PPI) figures have significantly trimmed due to lower oil prices, the Federal Reserve will pause the rate hike regime after one more 25 bps rate hike.
However, the release of the US Durable Goods Orders and Gross Domestic Product (GDP) data will provide more clarity this week. March’s Durable Goods Orders data is seen expanding by 0.8% vs. a contraction of 1.0%. Later this week, Annualized (Q1) GDP is expected to contract to 2.0% vs. the former release of 2.6%. A decline in GDP numbers would fuel fears of a slowdown in the United States economy. This may also force the Federal Reserve to go for a steady stance on interest rate guidance.
Bank of England to hike rates further to arrest double-digit Inflation
The United Kingdom has been failing to arrest gigantic inflation in comparison with other developed economies. The inflation rate has remained stuck in the double-digit territory despite restrictive monetary policy from the Bank of England (BoE) and tight fiscal policy from the UK government. Shortage of labor due to early retirement and the Brexit event, and 45-year high food inflation have been major constraints of galloping UK inflation.
The street is anticipating one more 25 bps rate hike from BoE governor Andrew Bailey to continue pressure on stubborn inflation.
GBP/USD technical outlook
GBP/USD has been consolidating in a wide range of 1.2347-1.2545 on a two-hour scale for the past three weeks. The pair is marching towards April 14 high at 1.2545 amid a solid upside momentum. April 19 high at 1.2472 is providing cushion to the Pound Sterling. The 20-period Exponential Moving Average (EMA) at 1.2460 is aiming higher, indicating more upside ahead.
Meanwhile, the Relative Strength Index (RSI) (14) is gauging cushion around 60.00. A revival from the 60.00 support by the RSI (14) will strengthen Pound Sterling bulls further.
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