• GBP/USD has retreated below 1.2150 following the extended rebound.
  • 1.2100 aligns as key support for the pair in the near-term.
  • USD could stay on the back foot in case markets remain risk-positive ahead of the weekend.

GBP/USD managed to build on Thursday's recovery gains during the Asian trading hours and advanced toward 1.2200. The pair, however, has lost its traction and retreated below 1.2150 in the European morning. If market mood continues to improve ahead of the weekend, the pair is likely to regain its traction.

The European Central Bank reassured markets on Thursday that the banking sector in the Eurozone remains healthy despite Credit Suisse turmoil. Moreover, the action taken by 11 big banks in the United States to help out First Republic Bank with its liquidity issues by depositing $30 billion allowed risk flows to dominate the financial markets in the American session.

Early Friday, the UK's FTSE 100 Index is up nearly 1% and US stock index futures trade modestly higher on the day. 

Markets are currently pricing in a nearly 90% probability of a 25 basis points (bps) Fed rate hike at next week's policy meeting. The data releases from the US on Friday, Industrial Production and the University of Michigan's Consumer Confidence Index, are unlikely to alter the market positioning in a significant way. Hence, the risk perception should continue to influence the US Dollar's valuation.

Meanwhile, EUR/GBP cross trades in positive territory slightly below 0.8800. Following the ECB's decision to raise its key rates by 50 bps on Thursday, several ECB policymakers noted that they were expecting to continue to hike rates in the near future. If the Euro's upbeat performance on hawkish ECB bets allows EUR/GBP to preserve its bullish momentum, GBP/USD could have a hard time gathering bullish momentum even if the USD stays on the back foot later in the session.

It's also worth noting that a recently conducted Bank of England (BoE)/Ipsos survey showed that 12-month inflation expectation declined to 3.9% in February from 4.8% in January. Ahead of the BoE's policy meeting, this development could limit Pound Sterling's upside in the near term by highlighting the possible policy divergence with the ECB.

GBP/USD Technical Analysis

On the downside, 1.2100 (Fibonacci 23.6% retracement level of the latest uptrend) aligns as first support. If that level stays intact, GBP/USD needs to confirm 1.2140 as support in order to target 1.2180 (static level, end-point of uptrend) and 1.2200 (psychological level, static level).

In case the pair drops below 1.2100, buyers could move to the sidelines and additional losses toward the 1.2060/1.2050 area, where the 200-period Simple Moving Average (SMA) on the four-hour chart and the 100-day SMA are located, could be witnessed. A daily close below this region could be seen as a significant bearish development and open the door for an extended decline toward 1.2000 (psychological level, Fibonacci 50% retracement).

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