• The hawkish comments from the Federal Reserve failed to prop up the dollar.
• Improved risk appetite linked to the Covid-19 outbreak in China strengthened sterling.
• US Consumer Confidence fell to its lowest level in four months, weighing on the dollar.

GBP/USD advances at the start of the North American session, amid mixed sentiment, due to hawkish comments from US Federal Reserve (FED) officials and the non-escalation of riots in China linked to the recent outbreak of Covid-19. Data from the United States (US) was largely ignored by market players, with most focusing on Wednesday’s busy schedule and Fed Chairman Jerome Powell’s speech. At the time of writing, GBP/USD is trading at 1.2010.

The mood of the markets remains positive and weighs on the dollar

US stocks wobble at the open on Wall Street. On Monday, St. Louis Fed President James Bullard said the Fed has “a ways to go to get to tightening,” adding that the first 250 basis points were for neutral rates. He stressed that rates should be around 5-7% through 2023 and 2024. Echoing some of his comments, John Williams of the New York Fed said that the strength of the US economy “suggests a slightly higher path for monetary policy relative to September. Not a massive change, but somewhat higher.” Meanwhile, money market futures have priced in a 50 basis point gain in December, with the odds of a 75 basis point gain standing at 15%.

Other than this, the Covid-19 outbreak in China has not worsened as initially thought, as global stocks remained mixed but trending higher. According to the Wall Street Journal, the National Health Commission urged local governments to avoid unnecessary and prolonged lockdowns. Chinese health authorities claimed that the Omicron variant is less severe, while pledging to vaccinate the elderly aged 80 and over.

Meanwhile, the Dollar Index (DXY), a measure that tracks the value of the USD against a basket of six currencies, lost 0.26% to 106.393, a tailwind for GBP/USD. Notably, US Treasury yields are rising, although the dollar remains on the defensive.

As for the data, the US economic calendar published the Conference Board (CB) Consumer Confidence, which fell to 100.2, standing at the lowest level in the last four months. Lynn Franco, senior director of economic indicators at the Conference Board, stated: “The combination of rising inflation and interest rates will continue to challenge confidence and economic growth through early 2023.”

At the time of writing, Bank of England (BoE) Governor Andrew Bailey said that “the scale of QE has not blurred the distinction between monetary and fiscal policy.”

What to do

The UK economic calendar will feature the Bank of England Huw Pill wire crossing. The US agenda will be busy with the release of ADP, GDP, Goods Trade Balance, Wholesale Inventories, Chicago PMI, JOLTs, Pending Home Sales, and the speech from the Fed, headed by Federal Reserve Chairman Jerome Powell.

GBP/USD Key Technical Levels