- GBP/USD comes under some selling pressure on Monday amid a good USD recovery.
- Bets on smaller Fed rate hikes cap USD rise and support the pair.
- Traders are now awaiting BOE Governor Andrew Bailey’s speech for significant momentum.
The pair GBP/USD It is back from the one-month highs reached earlier this Monday and remains on the defensive during the North American session, although it lacks follow-through. The pair is currently sitting around 1.2200 and is weighed down by modest USD strength.
In the absence of relevant economic data, the softer risk tone, amid concerns about a deeper global economic recession, revives demand for the safe-haven dollar. In fact, the USD Index, which measures the performance of the USD against a basket of currencies, is bouncing off 7-month lows and putting some downward pressure on GBP/USD.
Sterling is further hurt by the gloomy outlook for the UK economy, which has fueled speculation that the Bank of England (BoE) may be nearing the end of its rate hike cycle. That being said, expectations of less aggressive Fed tightening are also limiting the USD recovery attempt and acting as a tailwind for GBP/USD.
Investors now seem convinced the Fed will soften its hawkish stance and have been pricing in a smaller 25 basis point rate hike in February amid signs of easing inflationary pressures. Bets were boosted by the latest US CPI report, released last week, which showed consumer prices fell in December for the first time in more than two and a half years.
Furthermore, a US holiday, commemorating Martin Luther King Jr. Day, is preventing dollar bulls from making aggressive bets and providing support for GBP/USD. That being said, BOE Governor Andrew Bailey’s speech could weigh on sterling and provide some momentum ahead of the monthly UK jobs data on Tuesday.
The pair is at a key technical inflection point, with the exchange rate resting just below the trend line of the short-term recovery from the January 6 lows. If GBP/USD manages to end the day below the trend line, it signals a probable breakout and further declines to come, likely towards support at the key Jan 12 low at 1.2090. However, a close above the trend line – which in practice means above 1.2225 – would invalidate the bearish thesis and suggest a possible continuation of the prevailing uptrend, to the highs of 1.2285. The 200 Week Simple Moving Average (SMA) is further depressing prices from where it is currently providing dynamic resistance at 1.2215. A lot will probably depend on Bailey’s speech at 15:00 GMT.
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.
