GBP/USD bears approach 1.2250 amid dicey markets ahead of key UK/US economics

• GBP/USD holds lower grounds near intraday bottom after reversing from seven-week high.
• Fears of tough banking regulations, Fed’s efforts to tame ballooning balance sheet weigh on sentiment.
• Fed’s dovish hike and downbeat yields join hawkish bias surrounding BoE, Brexit optimism to keep buyers hopeful.
• UK Retail Sales, PMIs for US/Britain could offer an active day ahead.

GBP/USD pares weekly gains at a nearly two-month high as bulls run out of steam amid mixed risk catalysts and anxiety ahead of the top-tier UK/US data on Friday. With this, the Cable pair retreats from a seven-week high to print the first daily loss in three, down 0.16% intraday as it flirts with the daily lo near 1.2260.

While the US Federal Reserve’s (Fed) dovish hike joined downbeat yields to previously propel the Cable buyers, fresh fears surrounding banking sector fallouts and hopes of longer tighter monetary policy from the Fed seem to have teased the GBP/USD sellers of late. It should be noted, however, that the downbeat US Treasury bond yields and mixed US data keep the pair buyers hopeful as they wait for key statistics.

Fears of a ballooning Fed balance sheet renew hawkish calls for the US central banks and join the global banking turmoil to weigh on the sentiment and allow the US Dollar to lick its wounds near the seven-week low. That said, the US Dollar Index (DXY) stays defensive near 102.60 after bouncing off a seven-week low the previous day but the US 10-year and two-year Treasury bond yields remain depressed around 3.39% and 3.80% respectively by the press time. While portraying the mood, the S&P 500 Futures struggle to copy Wall Street’s positive moves.

Also contributing to the GBP/USD weakness are comments from US Treasury Secretary Janet Yellen and Chair of the Basel Committee on Banking Supervision, Pablo Hernández de Cos. 

Financial Times (FT) recently mentioned said that the head of the world’s top financial regulator, Pablo Hernández de Cos, has called for tighter rules to clamp down on risks spreading from so-called “shadow banks” to other parts of the banking system. On the other hand, US Treasury Secretary Janet Yellen said on Thursday, “China and Russia may want to develop an alternative to the US dollar,” while also showing preparedness for additional deposit actions `if warranted'.

On a different page, US second-tier data has been impressive of late and keeps the Fed hawks hopeful despite the latest disappointment from the US central bank. On the other hand, Bank of England (BoE) stays ready for further rate hikes should inflation stays high, which in turn joins the Brexit optimism to keep GBP/USD firmer.

Looking ahead, UK Retail Sales for February and preliminary readings of the UK and US PMIs for March will join the US Durable Goods Orders for February to entertain the Cable pair traders. However, major attention should be given to the banking headlines and Fed/BoE bets for clear directions. Additionally important will be a signing of the Brexit deal over the Northern Ireland Protocol (NIP) as UK Foreign Secretary James Cleverly and the European Commission’s President Maros Sefcovic will chair a meeting to discuss how to formally adopt the new arrangements.

Technical analysis

Although a 10-month-old resistance line, around 1.2345 by the press time, restricts immediate GBP/USD upside amid overbought RSI, sellers need validation from a 12-day-old ascending trend line of near 1.2250.