GBP/USD nears 1.2500 as doubts over Fed's role in banking turmoil weigh on US Dollar

GBP/USD takes the bids to renew intraday high near 1.2490 as it cheers the broad US Dollar weakness ahead of the key Federal Open Market Committee (FOMC) monetary policy meeting announcements. In doing so, the Cable pair buyers also cheer the latest doubts on the Fed’s capacity to further inflate the benchmark rates.

On Tuesday, a top White House (WH) Economist Heather Boushey, a member of the White House Council of Economic Advisers, told Reuters that the Fed is raising interest rates in the hope of reducing inflation. That is having this negative effect on the banking sector. “Why would we add to that?,” said WH Economist Heather Boushey.

On the same line, mixed US data and looming fears of US default, as well as a divergence between the Bank of England (BoE) and the Federal Reserve (Fed), also propel the GBP/USD prices.

That said, United States Factory Orders for March improved to 0.9% versus 0.8% expected and -1.1% (revised) previous readings. However, the US JOLTS Job Openings for the said month eased to 9.59M from 9.974M prior and 9.775M market forecasts. It’s worth noting that the easing of the US Gross Domestic Product (GDP) joined mixed ISM PMI details to prod the DXY bulls previously and favor the Cable pair buyers. However, upbeat inflation clues defend the Federal Reserve hawks, which in turn suggests the US central bank is all set for a 0.25% rate hike. As a result, traders are more interested in hearing about the Fed’s policy pivot, previously anticipated to take place in 2023, for clear GBP/USD guidance.

Elsewhere, the Bank of England’s (BoE) more than 10% inflation contradicts the comparatively sluggish inflation data from the US, which in turn adds strength to the GBP/USD upside.

Alternatively, fresh selling of PacWest Bancorp and Western Alliance Bancorp shares triggered banking fears across the board and prod the GBP/USD buyers. Additionally weighing on the market sentiment and challenging the Cable pair bulls could be the US policymakers’ struggle to avoid debt ceiling expiration, looming in June versus previous expectations of July expiry.

“Top US Senate Republicans on Tuesday called on President Joe Biden to accept their party's debt-ceiling package or make a counter-offer, while a top Democrat said the Senate might try to advance a "clean" debt-ceiling hike next week,” said Reuters.

Against this backdrop, Wall Street closed in the red and the US Treasury bond yields also dropped whereas S&P 500 Futures also print mild losses at the latest.

Looking ahead, GBP/USD may keep cheering the US Dollar’s weakness ahead of the key US ADP Employment Change for April and the ISM Services PMI for the said month. However, major attention will be given to the Federal Reserve (Fed) announcements and the banking headlines for clear guidance.

Also read: FOMC Meeting Preview: Powell to keep every door open, surprises not out of the table after RBA

Technical analysis

A five-week-old rising wedge keeps GBP/USD bears hopeful despite the pair’s latest recovery. However, a daily closing below the 1.2445 support line becomes necessary for the sellers to retake control.