GBP/USD retreats towards 1.3400 on USD rebound, US/UK PMIs, Ukraine in focus
|- GBP/USD pauses the two-day winning streak, fades last week’s bounce off 10-week low.
- UK public inflation expectations propel BOE rate-hike calls but US inflation expectations fail to back 0.50% rate-lift.
- EU’s Funding halt to British scientists portray Brexit woes, Russia extends Ukraine’s invasion despite global sanctions.
- February’s activity numbers, US President Biden’s SOTU will entertain traders but risk catalysts will be the key.
GBP/USD remains depressed around the intraday low of 1.34005 during Tuesday’s Asian session. The cable pair consolidated the monthly losses in the last two days before the latest retreat.
The US dollar pullback and increasing odds of the Bank of England’s (BOE) hawkish moves in the upcoming meetings favored the cable buyers of late. Though, fears of Ukraine-Russia and the US dollar’s latest rebound recently challenged the recovery moves.
On Monday, a survey from the US bank Citi and polling firm YouGov said their gauge of expectations for inflation in five to 10 years' time rose to 4.1% from 3.8% in January, equalling a record high struck in June 2011, per Reuters. The upbeat inflation data favors the CME’s BOEWatch tool to propel the rate hike chances.
The same highlights today’s UK Manufacturing PMI for February, expected to match initial prints of 57.3, to keep buyers hopeful.
On the other hand, the US dollar tracks the US Treasury yield and inflation expectations to pare the previous losses. The US 10-year Treasury yields dropped the most since early December 2021 the previous day, up two basis points (bps) to 1.86% at the latest. That said, the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data jumped to the highest since November 23, marked a 2.62% figure by the end of Monday’s North American session. It should be noted that the CME’s FedWatch Tool marked nearly 5.0% probabilities of a 0.50% Fed rate hike in March, versus more than 50% before a few days. While considering this, Atlanta Fed President Raphael Bostic said on Monday, “Today I am in favor of a 25 bps move at March meeting."
Elsewhere, a pause in the EU’s funding to the British science studies, due to Brexit, joins a deadlock over the Northern Ireland (NI) border to test the GBP/USD bulls.
Talking about the Russia-Ukraine standoff, the peace talks ended without any update the previous day but have been kept on the table for discussion. Further, Russia’s criticism of the Western sanctions and aggression of military invasion inside Kyiv suggests that the geopolitical risks have miles to go before easing, which in turn underpin the US dollar’s safe-haven demand.
Looking forward, highlights today’s US ISM Manufacturing PMI for February and US President Joe Biden’s State Of The Union (SOTU) speech will offer fresh impulse to the GBP/USD prices, in addition to the geopolitical and Brexit headlines.
Technical analysis
The cable pair’s latest struggle in keeping the rebound joins bearish MACD signals and the clear break of the previously important support lines and moving averages favor sellers.
However, a daily closing below the 61.8% Fibonacci retracement (Fibo.) of December-January upside around 1.3385 becomes necessary for the pair to aim for February’s low near 1.3275.
On the contrary, buyers may take interest should the latest recovery moves cross the 50% Fibo. level surrounding 1.3455.
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