- A combination of factors is pulling GBP/USD away from the one-month highs reached on Tuesday.
- Expectations of the Bank of England pausing its rate hike cycle and a stronger USD are putting some pressure on the pair.
- Investors are now looking to the UK budget and US macroeconomic releases for further impetus.
The pair GBP/USD has come under renewed selling pressure after an initial rally to the 1.2180 zone and is moving lower for the second day in a row on Wednesday. The pair falls below the 1.2100 level during the first half of the European session, with the bears now looking to extend the previous day’s retracement dip from the 1.2200 level, or a 1-month high. At time of writing, the pair is trading at 1.2067, recovering slightly from the daily low of 1.2059.
The relative underperformance of the pound sterling is due to the expectations that the Bank of England (BoE) will pause its rate hike cycle, which in turn acts as a headwind for the GBP/USD pair. In fact, the UK Office for National Statistics reported on Tuesday that annual growth in total median wages – including bonuses – slowed to 5.7% in the three months to January, from 6% in the prior month. If bonuses are excluded, salary growth went from 6.7% to 6.5%. This is considered the first sign that UK wages are cooling off and should allow the central bank to take a dovish stance amid bleak economic prospects.
The dollar, for its part, is supported by a new rise in US Treasury bond yields, reinforced by the revival of expectations of a rate hike of at least 25 basis points by the Federal Reserve at its meeting on March 21 and 22. Expectations were fueled by the US CPI release on Tuesday, which indicated that inflation is not coming down as fast as expected. Besides, the new fall in US equity futuresin a context of concern about the banking crisis in the US, has strongly boosted the safe-haven dollar. This, in turn, supports the prospects for an extension of the GBP/USD retracement from the round 1.2200 level.
The reason for this renewed risk aversion seems to be caused by Credit Suisse shares have tumbled on Wednesday, falling as much as 10.5% to a new all-time low.while its biggest investor said that could not provide the Swiss bank with further financial assistance. “We cannot because we would exceed 10%. It is a regulatory issue,” Saudi National Bank president Ammar Al Khudairy said on Wednesday.
Traders, however, seem reluctant to take aggressive positions and may prefer to wait for the UK government’s Spring Budget amid soaring inflation and a cost of living crisis. Apart from this, the US economic calendar, with the release of the Producer Price Index (PPI), the monthly Retail Sales figures and the Empire State Manufacturing Index, could provide some boost to the GBP/USD pair further. late during the American session. However, the aforementioned fundamental undercurrent seems to be leaning strongly in favor of the bears and suggests that the path of least resistance is to the downside.
GBP/USD technical levels to watch
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
