GBP/USD struggles to recapture 1.2200 as investors turn anxious ahead of Fed-BoE policy

GBP/USD is doing some serious attempts for recapturing the round-level resistance of 1.2200 in the early European session. The major is oscillating in a narrow range of 1.2168-1.2203. The Cable is struggling to deliver decisive action and is showing a subdued performance as investors are awaiting interest rate decisions by the Federal Reserve (Fed) and the Bank of England (BoE), which will be announced on Wednesday and Thursday respectively.

S&P500 futures are displaying sheer volatility. The 500-US stocks basket has surrendered its entire gains generated in early Asia. It seems that UBS’s rescue plan for Credit Suisse has failed to cheer market participants. Credit Suisse shareholders were deprived of a vote on the deal and will receive one share in UBS for every 22.48 shares they own, valuing the bank at $3.15bn (£2.6bn), as reported by BBC News. Various central banks have come forward to provide liquidity assistance to rescue the second-largest Swiss bank in order to revive the confidence of consumers.

The announcement of liquidity assistance to revive the 164-year-old bank has impacted demand for US government bonds. The 10-year US Treasury yields have scaled above 3.42% as higher liquidity flush could propel inflationary pressures again.

Key event of the week- Federal Reserve policy

The whole arena would go through nail-biting moments as the Federal Reserve (Fed) would announce its March monetary policy in times when fears of banking turmoil are deepening sharply. It seems unrealistic that Fed chair Jerome Powell would undermine the potential banking meltdown and will only focus on bringing down the stubborn inflation. Federal Reserve policymakers are delighted with the fact that January’s inflation data was a one-time blip as February’s inflation indicators displayed the continuation of inflation softening.

Therefore, the Federal Reserve would be relieved even if it announces second 25 basis points (bps) interest rate hike. In a recent poll by Reuters, 76 of 82 economists believe that the US Federal Reserve would raise its policy rate by 25 basis points to the range of 4.75-5% following the March Federal Open Market Committee (FOMC) meeting.

BoE to choose from a dismal economic outlook and double-digit inflation

Unlike other economies, the United Kingdom has been facing issues with a dismal economic outlook, political instability along with persistent inflationary pressures. Bank of England Governor Andrew Bailey remained in a fix last year in choosing between growth and inflation. Shortages of labor and higher food inflation have remained major supporters of rampant inflation.

No doubt, the Bank of England has been restricting its monetary policy to bring down the galloping inflation. The interest rate has already reached 4%. However, fresh concerns of the global banking fiasco are expected to add to more troubles for the Bank of England policymakers. Therefore, the street is not convinced about further rate hikes for now.

Analysts at Rabobank also see a quarter-point rate increase and warn that such a scenario is not fully priced in the interest market, “which indicates that the chance of a hold has increased following the collapse of Silicon Valley Bank (SVB).” A 25 bps rate hike by BoE Governor Andrew Bailey would push rates to 4.25%.

The action from the Pound Sterling would not be restricted to the monetary policy from the Bank of England. Wednesday’s Consumer Price Index (CPI) data is going to drive the Bank of England’s decision-making ahead. As per the estimates, the annual headline CPI is expected to trim to 9.8% from the former release of 10.1%. While the core CPI that excludes oil and food prices would remain steady at 5.8%.

GBP/USD technical outlook

GBP/USD has witnessed a solid upside move after testing the breakout zone of the Falling Channel chart pattern formed on a daily scale. The Cable is approaching the horizontal resistance plotted from December 14 high at 1.2447. The 20-period Exponential Moving Average (EMA) at 1.2080 is providing cushion to the Pound Sterling bulls.

The Relative Strength Index (RSI) (14) is gearing to shift into the bullish range of 60.00-80.00, which will trigger the upside momentum.