- GBP/USD gains some positive traction on Wednesday amid modest USD decline.
- The decline in US bond yields and the positive tone in risk appetite weigh on the safe haven USD.
- Fed rate hike expectations should support USD losses and cap the pair ahead of US CPI.
The pair GBP/USD trades with a slight positive bias at the start of the European session on Wednesday, holding on to modest daily gains around the 1.2330 level.
The Current pullback in US Treasury bond yields, coupled with a positive tone around equity markets, weighed on the US dollar safe haven. This, in turn, was seen as a key factor helping the GBP/USD pair attract some buying near the 1.2300 level on Wednesday. However, there seems to be no significant rally yet, so be cautious before opening new intraday bullish positions.
The UK’s National Institute for Economic and Social Research (NIESR) has stated that the country is on track to enter a technical recession in the second half of 2022. The NIESR now forecasts UK GDP to contract by 0.2% in the third quarter and by 0.4% in the last three months of the year. This is coupled with the gloomy outlook from the Bank of England, which should act as a headwind for the British pound.
Besides, expectations that the Fed will have to take more drastic measures to control inflation should limit the dollar’s losses and help limit the GBP/USD pair. Indeed, markets continue to price in further rate hikes of up to 200 basis points for the rest of 2022, amid concerns about strains on global supply chains stemming from China’s zero covid policy and the ongoing war in China. Ukraine.
Therefore, the focus will be on the release of the latest US CPI consumer inflation figures, to be released at the start of the American session. The US CPI report could give clues as to how aggressively the Federal Reserve will tighten its monetary policy. This, in turn, would influence the dollar’s short-term price dynamics and provide a further directional boost to the GBP/USD pair.
GBP/USD technical levels
Source: Fx Street
With 6 years of experience, I bring to the table captivating and informative writing in the world news category. My expertise covers a range of industries, including tourism, technology, forex and stocks. From brief social media posts to in-depth articles, I am dedicated to creating compelling content for various platforms.
