- GBP/USD struggles to capitalize on its Asian session uptick and remains below the 1.2200 mark.
- Rising US bond yields act as a tailwind for the USD, which, in turn, caps the upside for the pair.
- Expectations that the BoE could pause its rate-hiking cycle contributes to cap gains for the GBP.
- Traders now look to the UK Budget Report and important US macro releases for a fresh impetus.
The GBP/USD pair attracts some buying during the Asian session on Wednesday and steadily climbs back closer to a one-month peak, around the 1.2200 round-figure mark touched the previous day. A generally positive risk tone undermines the safe-haven US Dollar and turns out to be a key factor lending support to the major. Investors piled back into stocks amid easing fears about a broader systemic crisis from the sudden collapse of Silicon Valley Bank (SVB), which led to the overnight relief rally on Wall Street and is evident from a stable performance around the Asian equity markets. That said, a further rise in the US Treasury bond yields is holding back traders from placing aggressive bearish bets around the USD and acting as a headwind for the pair.
Despite uncertainties over the US banking system, investors still seem convinced that the Federal Reserve might still go ahead with a smaller 25 bps rate hike at its next policy meeting on March 21-22. The bets were lifted by the mixed US consumer inflation figures released on Tuesday, which showed that the core CPI (excluding food and energy prices, increased slightly to 0.5% in February from 0.4% previous. The yearly core CPI, however, edged down to 5.5% during the reported month from 5.6% in January. Furthermore, the headline CPI rose by 0.4% in February and decelerated to a 6.0% YoY rate from the 6.4% in the previous month. The data did not offer any major surprises, though supports prospects for further tightening by the Fed.
In contrast, the markets are now pricing in around a 40% chance that the Bank of England (BoE) will pause its rate-hiking cycle next week amid signs the UK wages are cooling. The UK Office for National Statistics reported on Tuesday that annual growth in average total pay — including bonuses — was 5.7% during the three months to January, down from 6% the previous month. Excluding bonuses, pay growth eased from 6.7% to 6.5%. This, to a larger extent, overshadowed the better-than-expected UK jobless rate, which held steady at 3.7% during the three months to January as compared to a modest uptick to 3.8% anticipated. This might further contribute to keeping a lid on any meaningful upside for the GBP/USD pair, at least for the time being.
Market participants now look forward to the UK Budget Report, which might influence the British Pound. Apart from this, traders will take cues from the US economic docket, featuring the release of the Producer Price Index (PPI), monthly Retail Sales figures and the Empire State Manufacturing Index. This, along with the US bond yields and the broader market risk sentiment, will drive the USD demand and provide some meaningful impetus to the GBP/USD pair. The focus, however, will remain glued to next week’s key central bank event risks – the outcome of a two-day FOMC meeting on Wednesday, followed by the BoE decision on Thursday.
From a technical perspective, bulls might still wait for a sustained strength beyond the 1.2200 mark before positioning for any further gains. The said handle coincides with the 61.8% Fibonacci retracement level of the January-March corrective decline and should now act as a pivotal point. A convincing breakthrough will negate any near-term negative bias and lift the GBP/USD pair towards the 1.2270-1.2275 intermediate resistance en route to the 1.2300 round figure and the 1.2320-1.2325 horizontal barrier. The momentum could get extended further and allow spot prices to aim to reclaim the 1.2400 level.
On the flip side, the 50% Fibo. level, around the 1.2120 zone, now seems to protect the immediate downside ahead of the 1.2100 mark and the 1.2050-1.2045 region (38.2% Fibo. level). Failure to defend the said support levels will suggest that the recent bounce from the 1.1800 mark, or the YTD low has run its course and make the GBP/USD pair vulnerable. The subsequent downfall could drag spot prices below the 1.2000 psychological mark, towards the 23.6% Fibo. level, around the 1.1955-1.1950 area. The next relevant support is pegged near the very important 200-day Simple Moving Average, around the 1.1900-1.1895 region, which if broken decisively will be seen as a fresh trigger for bearish traders.