GBP/USD bulls return to key 1.2250 zone

• GBP/USD bulls re-establish near 1.2250 but keep charging.
• The US dollar is weighed down after the Fed’s monetary policy easing.

The GBP/USD trades at 1.2254 and rises on the day on the back of US dollar weakness following Wednesday’s Fed meeting and a statement that left futures markets tied to Fed policy expectations tilted towards a more dovish rise for the next meeting.

Nationally, there has been no data out of the UK, but investors are wary of the Bank of England’s next move. The central bank will meet on August 4 and markets expect the central bank to continue its tightening cycle with the possibility of a further 50 basis point hike.

However, drenched in political and economic woes, the pound has been one of the biggest laggards this year, despite the Old Lady getting out of the traps with a relatively early policy tightening. Net short sterling fell for a second week as the market expects more rate hikes if Truss becomes the UK’s next prime minister, in view of her tax cut schedule. However, the poor growth outlook in the UK remains a major concern for speculators.

The British pound has traded under a cloud of negative sentiment for much of this year,” Rabobank analysts noted. In May, the Bank of England’s expected rate hike failed to prevent the pound from falling as the market clung to the downward revision of the Bank’s growth”.

“At that time, the OECD was forecasting that the UK would have no growth in 2023, slightly worse than our house forecast of 0.2%. The Bank of England, like most other central banks, has pledged to contain inflation, even at the cost of growth. However, the latter’s absence has been a strong headwind for the pound.”

Meanwhile, the US dollar has also moved between bears and bulls based on risk sentiment. The weakness of the euro has benefited the US dollar due to the gas problems in Europe and the lack of confidence of business in Germany on Monday. In addition, the gloomy prospects for global growth forecast by the International Monetary Fund have helped boost the dollar due to its safe haven status.

DXY has been trading lower since the US central bank raised interest rates by 75 basis points, as widely anticipated, while comments from Fed Chairman Jerome Powell buoyed hopes of a slower ascent path.

It was reported on Thursday that US Gross Domestic Product fell at an annualized rate of 0.9% last quarter, the Commerce Department said in its GDP flash estimate. Economists polled by Reuters had expected GDP to rebound at a rate of 0.5%.

Technical levels