- GBP/USD struggles to gain significant traction and range-bound on Thursday.
- Recession fear weighs on investor sentiment and benefits the dollar, limiting gains.
- Prospects of further rate hikes by the Bank of England support sterling and act as a tailwind.
The pair GBP/USD finds some support ahead of the 1.2300 zone on Thursday and appears to have halted the previous day’s pullback from its highest since Dec 14 for now. However, the pair is struggling to gain significant traction and remains range bound below 1.2350 until the middle of the European session.
A new wave of global risk aversion trading – amid rising fears of a possible recession – benefits the relative safe haven status of the US dollar and caps GBP/USD upside. Investors remain concerned about headwinds stemming from the worst COVID-19 outbreak in China and the protracted war between Russia and Ukraine. In addition, weaker US macroeconomic data released on Wednesday further fuels fears of a deeper global economic downturn and weighs on risk sentiment.
Dollar bulls, however, remain on the back foot amid increasingly firm expectations of a less aggressive Fed tightening. Indeed, markets now seem convinced that the central bank of The US will soften its hawkish stance and have been pricing in a smaller 25 basis point rate hike in February. This causes a further decline in US Treasury yields and weighs on the dollar. On the other hand, speculations that the Bank of England will maintain a more restrictive stance support GBP/USD.
Investors expect the UK central bank to keep raising interest rates to combat stubbornly high inflation. Bets were bolstered by wage growth data released on Tuesday, which could keep inflation high. In addition, UK headline CPI, although it fell to its lowest level in three months in December, remains at levels last seen in the early 1980s. This could continue to act as a tailwind for the pound. sterling and supports the prospects for further appreciation of the GBP/USD pair.
Speeches from influential FOMC members, US bond yields and broader risk sentiment will drive demand for the USD and provide some momentum for GBP/USD. However, the fundamental background favors the bulls, suggesting that any pullback could attract new buyers and remain limited.
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.
