- GBP/USD has built an intermediate cushion around 1.2300 as USD Index faces selling pressure.
- Goldman Sachs sees two additional 25 bps rate hikes by the Fed after a 25 bp rate hike announcement on Wednesday.
- The BoE might continue with bigger interest rate hikes to tame soaring inflation.
The GBP/USD pair has gauged an intermediate cushion after dropping to near the crucial support around 1.2300 in the Asian session. The Cable has gained traction as the US Dollar Index (DXY) has retreated after a pullback move to near 101.80. It would be early to consider the halt in the Pound Sterling downside as a bullish reversal as the FX domain is likely to remain volatile ahead of the interest rate decision by the Federal Reserve (Fed).
Meanwhile, the risk profile is still in favor of safe-haven assets. S&P500 futures are carrying losses in Asia despite a bullish Tuesday session as investors are worried that the continuation of policy tightening by the Fed will dampen the scale of economic activities in the United States. Investors should brace for escalating recession fears and higher interest rates will put a dent in the morale of producers.
Contrary to the risk-aversion theme, the demand for US government bonds is increasing. This has led to a decline in the 10-year US Treasury yields below 3.51%.
Meanwhile, economists at Goldman Sachs have come up with expectations for dictations by Fed chair Jerome Powell in February’s monetary policy meeting. They believe that "Since the FOMC last met in December, incoming data on wage growth and inflation have been encouraging, while signals on activity growth have been mixed and at times concerning. This ended up making the case for slowing the pace of rate hikes to 25bp this week quite easy.”
For further guidance, Goldman Sachs expects two additional 25bp hikes in March and May, but fewer might be needed if weak business confidence depresses hiring and investment.
On the United Kingdom front, the absence of inflation slowdown signals and rising wage growth due to a tight labor market are bolstering the case of a higher interest rate hike by the Bank of England (BoE). As per the consensus, BoE Governor Andrew Bailey is expected to announce a 50 basis point (bps) interest rate hike to 4.00%.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD: The first upside target is seen at the 1.0710–1.0715 region
The EUR/USD pair trades in positive territory for the fourth consecutive day near 1.0705 on Wednesday during the early European trading hours. The recovery of the major pair is bolstered by the downbeat US April PMI data, which weighs on the Greenback.
GBP/USD posts modest gains above 1.2450, BoE policymaker dampens hopes of summer rates cut
The GBP/USD pair recovers to 1.2450 during the early Wednesday. The downbeat US April PMI data and increasing appetite for the risk-linked space exert some selling pressure on the US Dollar.
Gold price struggles to lure buyers amid positive risk tone, reduced Fed rate cut bets
Gold price lacks follow-through buying and is influenced by a combination of diverging forces. Easing geopolitical tensions continue to undermine demand for the safe-haven precious metal. Tuesday’s dismal US PMIs weigh on the USD and lend support ahead of the key US data.
Crypto community reacts as BRICS considers launching stablecoin for international trade settlement
BRICS is intensifying efforts to reduce its reliance on the US dollar after plans for its stablecoin effort surfaced online on Tuesday. Most people expect the stablecoin to be backed by gold, considering BRICS nations have been accumulating large holdings of the commodity.
US versus the Eurozone: Inflation divergence causes monetary desynchronization
Historically there is a very close correlation between changes in US Treasury yields and German Bund yields. This is relevant at the current juncture, considering that the recent hawkish twist in the tone of the Fed might continue to push US long-term interest rates higher and put upward pressure on bond yields in the Eurozone.