GBP/USD sees a downside to monthly lows at 1.3050 as the Fed looks to return to neutral rates quickly
- GBP/USD is likely to slip to near 1.3050 on the hawkish stance from the Fed.
- The Fed may achieve the target of the neutral rate by the first quarter of 2023.
- Next week CPI numbers from the US and the UK will remain the key events to watch out.
The GBP/USD pair is oscillating in a wider range of 1.3045-1.3106 over the last three trading sessions. The cable seems to extend losses after tumbling below the April 6 low at 1.3045 as the asset has struggled to surpass the round level resistance of 1.3100 decisively.
The asset is driving lower after the release of hawkish Federal Open Market Committee (FOMC) minutes and elevating support for the neutral rates by the Federal Reserve (Fed) policymakers on completion of the stated objective of helicopter money and ultra-loose monetary policy. The FOMC minutes have dictated that the Fed is considering one or more interest rate hikes of 50 basis points (bps) this year to contain the inflation mess. Apart from that, a sheer balance sheet reduction will kick-start from May to squeeze liquidity from the market.
Fed’s neutral rate is viewed at 2.4% by a majority of the policymakers as its application will not reduce growth and dampen demand. Considering the mathematics behind reaching the neutral rates at 2.4%, the Fed is likely to reach the destination of neutral rates by the first quarter of 2023.
Going forward, the focus of the market participants will remain on the US Consumer Price Index (CPI), which is due on Tuesday. A preliminary estimate for the yearly US CPI is 8.3% against the previous print of 7.9%. The UK’s docket will also report its yearly CPI numbers, which are expected to land at 6.6% in comparison with the prior figure of 6.2%.
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.
