GBP/USD stabilizes above 1.2400 as USD index extends correction, US PCE in focus

The GBP/USD pair has shifted its auction profile above 1.2400 in the early Asian session after a recovery move from below 1.2350 on Thursday. The Cable has witnessed a decent buying interest as the US Dollar Index (DXY) has extended its correction to near 101.40.

Half of the gains recorded by the USD Index on Thursday after the release of the upbeat United States Gross Domestic Product (GDP) and Durable Goods Orders data were surrendered amid overall optimism in the market. S&P500 settled Thursday’s trading session with significant gains as upbeat GDP data trims recession fears dramatically. Also, upbeat economic data trimmed demand for US government bonds, which led to a recovery in the 10-year US Treasury yields to above 3.50%.

The US GDP for the fourth quarter of CY2022 landed at 2.9% higher than the expectations of 2.6% but lower than the former release of 3.2%. While Durable Goods Orders jumped to 5.6% against the expectations of 2.5% and the prior release of -1.7%. Upbeat forward demand for Durable Goods could accelerate core inflation projections, which could force the Federal Reserve (Fed) to drop the idea of 25 basis points (bps) interest rate hike in February and continue to hike interest rates by 50 bps as announced in December’s monetary policy meeting.

For further guidance, investors will keep an eye on the release of the Fed’s preferred inflation tool. The monthly core Personal Consumption Expenditure (PCE) Price Index (Dec) is expected to escalate to 0.3% from the former release of 0.2%.

On the Pound Sterling front, the United Kingdom office is preparing for a budget to be announced on March 15. Sunak’s Office said "The Prime Minister and Finance Minister Jeremy Hunt emphasized that the rate of inflation is only predicted to fall because of the tough decisions the Government had taken at the autumn statement to stabilize the economy,” reported Reuters.