GBP/USD falls again and the dollar rises from the lows of the American session

• GBP/USD is back under pressure as the US dollar rebounds.
• Despite weaker US data, the dollar is correcting Tuesday’s sell-off.
• The GBP only got temporary relief with the ”Windsor Framework” deal.

The pair GBP/USD It gained quite a bit of ground on Tuesday, after the recovery started on Monday, thanks to the agreement reached and the end of a tense dispute between the United Kingdom and the EU over Northern Ireland. New trade rules were put in place which could solve the problems of importation and border controls in Northern Ireland and which could help to ensure that Northern Ireland is not treated in any way separate from the rest of the UK. The agreement, dubbed the “Windsor Framework” – an amendment to the original Northern Ireland Protocol – attempts to resolve these issues.

Sterling hit a high of 1.2143 from 1.1925 earlier this week after UK Prime Minister Rishi Sunak’s announcement. In addition, the cost of insuring UK government debt against default fell to its lowest level in three weeks, near a five-month low in January, reflecting increased investor confidence. However, analysts note that given the economic outlook, the new post-Brexit rules are not likely to be durable for sterling.

We remain unconvinced on the current fundamental undercurrent in the UK,” Rabobank analysts said, “absent a deal on the Northern Ireland protocol, we expect any rallies in the pound to be short-lived.”

Markets expect UK rates to peak at 4.8% by the end of the year, up from 4.0% today. At the beginning of the month, the expected maximum was only 4.0%.

The dollar recovers

Meanwhile, the dollar has dominated US markets and choppy trading on Wall Street. A round of mostly weak economic data knocked him out of his position, but he soon turned around and got back on track for the best monthly gain since September. Federal Reserve sentiment is keeping the dollar in the hands of the bulls, as the idea that the central bank will have to raise interest rates more than initially anticipated is priced in.

Despite some less encouraging data in the last two key releases, given the previous round of inflationary results, US interest rate futures have priced in a top 5.4% federal funds rate in September. The market has all but ruled out rate cuts this year. As a result, the US dollar index, DXY, which measures the currency against a basket of major currencies, rose 0.18% in late morning trading on Wall Street and was on track for a February gain of more than 2.5%. , its first monthly increase since September.

Turning to data released Tuesday showing signs of cracks in the economy, US single-family home prices rose at their slowest pace in December since summer 2020, while the US PMI rose US Chicago fell to 43.6 in February, weaker than expected, after falling to 44.3 in January. To top it off, Consumer Confidence also lost footing this month to 102.9, down from last month’s revised reading of 106.