- GBP/USD is trading in a range below the 1.2600 level at the start of the European session on Wednesday.
- Expectations of an aggressive Fed rate hike continue to underpin the USD and act as a headwind for the pair.
- The decline remains supported ahead of key FOMC and BoE monetary policy meetings.
The pair GBP/USD has recovered its modest intraday losses and remains stable around the region of 1.2575-1.2580 at the start of the European session on Monday.
The pair struggled to capitalize on Friday’s strong recovery move, from its lowest level since July 2020, moving lower on the first day of a new week amid fresh buying around the US dollar. . Prospects for a more aggressive monetary policy tightening by the Fed helped the dollar regain positive traction and again approached the multi-year high touched last week.
In fact, markets expect the US central bank raise interest rates at a faster pace and eventually raise benchmark rates to around 3.0% by the end of the year to combat high inflation. This was reinforced by elevated US Treasury yields, which in turn continued to act as a tailwind for the dollar and put some downward pressure on GBP/USD.
On the other hand, the British pound was hit by signs that the UK economy is under stress from rising cost of living. Weak UK retail sales figures last month have highlighted that high inflation may already have started to weigh on consumer spending. This forces investors to lower expectations of any further rate hikes by the Bank of England..
Despite the negative factors, the downside remains supported as investors appear reluctant to open aggressive positions ahead of this week’s key central bank risks. The Fed is expected to announce its decision at the end of a two-day policy meeting on Wednesday and is expected to raise rates by 50 basis points. This will be followed by the Bank of England’s monetary policy update on Thursday.
Apart from this, important macroeconomic data scheduled at the beginning of a new month, including the monthly US jobs report on Friday, will help determine the path of the pair in the short term. In the meantime, investors will take cues from the US ISM Manufacturing PMI, which could weigh on the USD and provide some lift to the GBP/USD pair during the American session today.
GBP/USD technical levels
Source: Fx Street
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