- GBP/USD is marching towards 1.1850 as DXY skids on trimmed Fed hawkish bets.
- As per a Reuters poll, a rate hike of 50 bps by the Fed looks likely.
- Higher UK labor cost data is expected to delight the BOE ahead.
The GBP/USD pair has rebounded sharply after the pound bulls defended the critical support of 1.1800 in the Tokyo session. The cable is heading towards the critical hurdle of 1.1850 and is likely to cross the same as the US dollar index (DXY) is facing the heat of exhaustion after a juggernaut rally. The asset is on the verge of giving an upside break of the consolidation formed in a chartered territory of 1.1805-1.1834.
For a while, the pound bulls have violated the continuation of the three-day losing streak by not surrendering Friday’s low of 1.1791. The DXY has displayed a minor downside after failing to sustain above 108.20. The asset has picked offers after the expectations of a consecutive 75 basis points (bps) rate hike by the Federal Reserve (Fed) trimmed.
“Most economists in an Aug. 16-19 Reuters poll predicted a half percentage point hike next month, the same as in the last poll, which would take the key interest rate to 2.75%-3.00%.”
Although, the commentary from Fed chair Jerome Powell will clear the clouds of uncertainty over further guidance. A slowdown in the pace of hiking interest rates by the Fed is on the cards to avoid the consequences of squeezing liquidity from the market.
On the pound front, vulnerable employment data impacted the pound bulls. However, a decent improvement in the labor cost data has resulted in a sigh of relief for the Bank of England (BOE).
The inflation rate is accelerating in the UK zone dramatically and to pay off the higher payouts, improvement in the wage rate was vulnerable. Therefore, the BOE policymakers were not deploying the quantitative tightening measures with full independence. The meaningful improvement in the labor cost index will delight BOE Governor Andrew Bailey while drafting the monetary policy.
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