- GBP/USD finds it difficult to capitalize on the previous day’s rally after the FOMC and runs into fresh selling on Thursday.
- Prospects of a further Fed tightening revive USD demand and put downward pressure on the pair.
- The decline appears supported as the market focus now shifts to the Bank of England’s monetary policy decision.
The pair GBP/USD extends its steady intraday decline at the start of the European session on Thursday and falls to a new daily low, around the region of 1.2515 in the last hour.
The pair was under some renewed selling pressure on Thursday and reversed a major part of the previous day’s strong move after the FOMC down to the 1.2635-1.2640 region, at highs of more than a week. It is worth remembering that the Fed announced the biggest rate hike since 2000 and the start of quantitative tightening. The US central bank, however, downplayed the possibility of oversized rallies and triggered an aggressive profit-taking move around the US dollar and provided a good boost to the GBP/USD pair.
That said, the markets continue pricing rate hikes of 200 basis points for the rest of 2022which was reinforced by a new upward movement in US Treasury bond yields. This, coupled with concerns about rising COVID-19 cases and strict lockdowns in China, helped the safe-haven USD to make a solid recovery and put downward pressure on the GBP/USD pair. However, the downside looks limited as investors may refrain from opening aggressive positions ahead of the Bank of England meeting.
The UK central bank appears ready to raise interest rates for the fourth time since December., to the highest level in 13 years, to contain inflation, which has jumped to a 30-year high. swap markets Bank of England is predicted to rise six times higher in 2022, which could have set the stage for disappointment. Given that the Monetary Policy Committee voted 8-1 in favor of the 25 basis point hike in March, any sign of slowing down or remaining flat would be seen as a dovish tilt.
This would suggest that the rate hike cycle could be close to a pause and weigh heavily on sterling, paving the way for a resumption of a three-week downtrend. Ahead of the key event, the release of the final UK services PMI could do little to impress investors or provide any significant boost to the GBP/USD pair. Even the initial US jobless claims, due to be released at the start of the American session, are likely to be overshadowed by post-BoE volatility.
GBP/USD technical levels
Source: Fx Street
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