GBP/USD advances steadily on soft US Dollar as Fed officials hints 50 bps in December

• The British Pound extended its gains amidst a risk-on impulse.
• Federal Reserve officials see a dual threat of over and under-tightening.
• GBP/USD Price Analysis: Range-bound around 1.1800-1.1900 amidst the lack of catalyst.

The Pound Sterling (GBP) climbed in the North American session, albeit Federal Reserve (Fed) hawkish commentary continued, though officials expressed the likelihood of moderating the pace. Another factor, China’s Covid-19 outbreak, sparked investors’ fears, though they waned as Wall Street is trading in the green. At the time of writing, the GBP/USD is trading at 1.1872, above its opening price by 0.40%.

On Monday, San Francisco Fed President Mary Daly said she’s worried about overtightening, and she foresees rates initially at 5%, and from there, rates could go higher, depending on data. The Cleveland Fed President Loretta Mester said that slowing the pace of interest rates in the next month is possible. Mester commented that pausing is not an option and agreed with Daly, expecting rates at around 5%.

The US Dollar Index (DXY), a gauge of the buck’s value against a basket of peers, drops 0.37%, down from 107.747 to 107.381, a tailwind for the Pound Sterling.

Meanwhile, the ongoing Covid-19 crisis in China shifted market sentiment sour on Monday, though it waned, as Chinese authorities had not reimposed stricter lockdowns. Some of the newest measures suggested that some schools are back to online learning, while some districts in Beijing asked citizens to stay home for at least five days.

On the United Kingdom (UK) side, the British Pound is underpinned by expectations that the Bank of England (BoE) would raise borrowing costs as they scramble to control 40-years high inflation. Regarding the Autumn Budget presented by Chancellor Jeremy Hunt was well received by investors, with some analysts saying that it is a deflationary budget.

Nevertheless, a gloomy economic outlook in the UK favors further GBP/USD downside. Even though recession fears increased in the US, the interest rate differential between the Federal Reserve and the Bank of England would bolster the US Dollar (USD), so the GBP/USD might be headed downwards.

GBP/USD Price Analysis: Technical outlook

The GBP/USD is consolidated around the 1.1800-1.1900 area after bouncing from weekly lows around 1.1750. In the European session, the GBP/USD hit a daily high above 1.1900, though it retreated on Federal Reserve’s hawkish commentary. Also, the Relative Strength Index (RSI) is almost horizontal in bullish territory, meaning buying pressure is losing momentum.

If the GBP/USD clears 1.1900, the next resistance would be the November 17 high of 1.1957, followed by the 1.2000 psychological level. On the flip side, the GBP/USD first support would be 1.1800, followed by the last week’s low on November 17 low, 1.1762.