GBP/USD retraces some of its intraday gains, remains comfortably above 1.2100

• GBP/USD is gaining ground for the second day in a row, though it lacks continuation.
• Less hawkish Fed rate hike expectations weigh on the USD and offer support for the pair.
• Problems from the banking crisis and expectations that the Bank of England will pause its rate hike cycle limit the pair’s gains.

He GBP/USD extends the previous day’s sharp rise and moves higher for the second day in a row on Friday. However, the pair pull back a few pips from the daily high at 1.2176 touched during the early part of the European session and is currently sitting around the 1.2135-1.2130 region, still up 0.20% on the day.

The Expectations that the Federal Reserve will take a less aggressive stance Given the worsening economic situation, they exert a strong downward pressure on the US dollar, which in turn supports GBP/USD. The bankruptcy last week of two mid-sized US banks –Silicon Valley Bank and Signature Bank– forced investors to lower expectations in favor of a more aggressive tightening of monetary policy by the US central bank. In fact, markets are now pricing in almost 90% of the possibility of a minor rise of 25 basis points at the next FOMC meeting on March 21-22, which, together with signs of stability in financial markets, weighs heavily. on the safe haven USD.

Multimillion-dollar aid to troubled banks in the US and Europe alleviate fear of widespread contagion. This, in turn, boosts investor confidence, evidenced by a modest recovery in stock markets. However, lingering concerns about a full-blown global banking crisis limit optimism. On the other hand, the quarterly survey of the Bank of England (BoE) has shown that the median of the British public’s inflation expectations for the coming year fell sharply in February. This reaffirms the expectations that the Bank of England (BoE) will pause its rate hike cycle next week and helps cap GBP/USD.

Market participants are now turning their attention to the release of the Michigan Consumer Sentiment Index in the US in search of short-term opportunities at the start of the American session on Friday. However, attention will remain focused on key central bank risks next week: the outcome of the highly anticipated FOMC policy meeting, to be announced next Wednesday, followed by the Bank of England’s policy meeting on Thursday. However, GBP/USD looks set to post modest weekly gains and remains at the mercy of USD price action.

GBP/USD technical levels to watch