GBP/USD recovers 1.2200 despite risk aversion and USD slide

• Weaker-than-expected economic data from China threatens to derail economic growth and trigger risk aversion.
• The Federal Reserve is under pressure due to the strong US economic data released since last Friday and the US inflation data that is coming up.
• GBP/USD: Maintains bullish bias, could test Tuesday’s high at 1.2269 before 1.2300.

The pound sterling (GBP) turned positive despite general risk aversion caused by weakening Chinese exports. Furthermore, the latest headlines involving Russian President Vladimir Putin saying that “the threat of nuclear war is rising” strengthened the US dollar (USD), giving GBP/USD another leg lower. However, the pound has recovered, and GBP/USD is trading at 1.2215, up from its opening price, after hitting a high of 1.2226.

Chinese exports plummet, sparking fears of a global recession

Sentiment remains deteriorating after weakening China Trade Balance data, which showed exports plunged 8.7% yoy, below estimates for a 0.3% contraction. Economic data from the second half of last week from the United States (USA) showed that the labor market remains tight and that wages are rising, a sign that the president of the Federal Reserve (Fed) is not going to like. , Jerome Powell. Given that Powell’s speech last Wednesday gave the green light to lower interest rate rises, the new inflation data that will be released this Thursday with the Producer Price Index (IPP) and the Consumer Price Index (CPI ) next week would be crucial to assess the rate hike next week by the Federal Reserve.

The lack of economic data in the UK keeps the pound sterling adrift from the dynamics of the US dollar. However, it seems that the political drama unleashed during Lizz Truss’s tenure has so far subsided, thanks to a fiscally responsible budget, drawn up by the new Prime Minister Rishi Sunak. However, it has to be said that the UK economy is “probably” already in recession, and a bleak outlook with labor shortages, wage inflation, Brexit jitters and weak investment, could hurt the outlook for upside. GBP/USD spot prices.

For the next week, the Federal Reserve and the Bank of England are expected to raise rates by 50 basis points, leaving interest rate differentials unchanged. What could rock the boat is the Summary of Economic Projections (SEP) released by the Fed, which will update Fed officials’ projections for Federal Fund Rates (FFRs). A higher peak for the FFR would be hawkish and could stimulate dollar strength towards the end of 2022.

GBP/USD Price Analysis: Technical Perspective

The GBP/USD daily chart suggests that the pair remains bullish after bouncing off the 200 day EMA at 1.2104. Geopolitical headlines related to Putin and nuclear war issues spurred a flight to safety, but jitters faded as GBP/USD approached Tuesday’s high at 1.2269. Therefore, the next resistance level for GBP/USD would be 1.2269, followed by the psychological 1.2300. As an alternative scenario, the first support for the GBP/USD would be 1.2200, followed by the 200 day EMA at 1.2104 and the 20 day EMA at 1.2048.