GBP/USD finds cushion around 1.2300 as USD Index retreats, Fed-BoE policy hogs limelight

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.

Sagar Dua FXStreet

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%.

GBP/USD

Overview
Today last price	1.2318
Today Daily Change	-0.0010
Today Daily Change %	-0.08
Today daily open	1.2328

Trends
Daily SMA20	1.2259
Daily SMA50	1.2182
Daily SMA100	1.1781
Daily SMA200	1.196

Levels
Previous Daily High	1.2371
Previous Daily Low	1.2284
Previous Weekly High	1.2448
Previous Weekly Low	1.2263
Previous Monthly High	1.2448
Previous Monthly Low	1.1841
Daily Fibonacci 38.2%	1.2317
Daily Fibonacci 61.8%	1.2338
Daily Pivot Point S1	1.2284
Daily Pivot Point S2	1.2241
Daily Pivot Point S3	1.2198
Daily Pivot Point R1	1.2371
Daily Pivot Point R2	1.2414
Daily Pivot Point R3	1.2458

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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