GBP/USD stabilizes above 1.2100 as risk-on impulse rebounds, FOMC minutes eyed

• GBP/USD is confidently shifting its business above 1.2100 amid a recovery in the risk appetite theme.
• Consideration of a 50 bps rate hike in the FOMC minutes could stem the dismal market mood.
• The UK economy is avoiding recession, however, chances of further escalation in CPI are accelerating.

The GBP/USD pair is building the auction platform above the round-level support of 1.2100 in the Asian session. The Cable is getting some strength as the risk appetite of the market participants is improving gradually.

S&P500 futures have firmly rebounded after an intense sell-off on Tuesday, portraying a sense of optimism in the overall negative market mood. The US Dollar Index (DXY) is struggling to extend its recovery above 103.80. Also, the 10-year US Treasury yields have dropped marginally below 3.94%.

Investors should brace for a volatility explosion after the release of the Federal Open Market Committee (FOMC) minutes. The release of the FOMC minutes will provide a detailed explanation behind the 25 basis points (bps) interest rate hike in the first week of February. The context that will be keenly watched by the market participants is the guidance on the interest rates.

Two hawkish policymakers, Cleveland Fed President Loretta Mester and St. Louis Fed President James Bullard cited last week that they saw the case for doing another 50 basis-point hike at the meeting and that such larger moves should still be on the table for upcoming decisions, as reported by Bloomberg. And, consideration of a 50 bps rate hike could stem dismal market mood.

On the United Kingdom front, rising uncertainty over the Northern Ireland Protocol (NIP) is impacting the Pound Sterling. The context might be compromised this week, however, the impact on the economic outlook of the UK will be observed after a few months. Meanwhile, Conservative rebels are continuously opposing the proposal.

Meanwhile, Tuesday’s upbeat preliminary UK PMI data cleared that retail demand is solid and the labor demand will stay for longer. No doubt, the economy is confidently avoiding recession, however, the chances of further escalation in the inflationary pressures are accelerating. Economists at UOB Group are expecting 25bps hikes at the next 2 meetings on 23 Mar and 11 May by the Bank of England (BOE), seeing the Bank Rate peak at 4.5%.