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GBP/USD Falls Below The Mid-1.2600s, Retreating From a One-Year High Set On Wednesday
GBP/USD faces some supply on Thursday and is under pressure from a modest US Dollar increase. The USD is supported by the Fed's signal that rates will increase by an additional 50 basis points in 2023. Bets on a more aggressive policy adjustment by the Bank of England should help the major limit its losses.
The GBP/USD pair moves further away from its greatest level since April 2022, around the 1.2700 level reached the previous day, during Thursday's Asian session. The pair is currently trading just below the mid-1.2600s, down roughly 0.15 percent on the day, but the fundamental environment remains favourable for bullish traders.
The US Dollar (USD) edges higher and seeks to build on yesterday's rebound from a one-month low, which is viewed as a significant factor acting as a headwind for the GBP/USD pair. The modest USD appreciation can be attributed to the Federal Reserve's (Fed) hawkish outlook and intention to recommence the rate-hiking cycle, signalling that borrowing costs will rise by an additional 50 basis points by the end of December. Fed Chair Jerome Powell stated in the post-meeting press conference that the pause was precautionary, allowing the central bank to acquire more information before determining whether rates need to be raised again.
In addition, Powell described US economic expansion and the labour market as exceeding expectations. This, in turn, increased market expectations for another 25-bps rate hike at the FOMC's July meeting, which helps the USD attract purchasers. The downside for the GBP/USD pair remains cushioned, as market participants appear persuaded that the Bank of England (BoE) will be much more aggressive in implementing policy tightening to combat stubbornly high inflation. The optimistic UK employment data published on Tuesday, which revealed a near-record wage growth and a lower unemployment rate, confirmed the bets.
This, in turn, suggests that the path of least resistance for the GBP/USD pair is to the upside and supports the likelihood of a continuation of the recent upward trend observed over the past three weeks or so. Traders are now focusing on the US economic calendar, which includes the publication of monthly Retail Sales, the usual Weekly Initial Jobless Claims, the Empire State Manufacturing Index, the Philadelphia Federal Reserve Manufacturing Index, and Industrial Production data. The data could influence USD price dynamics later in the North American session's early hours, allowing traders to capitalise on short-term opportunities surrounding the major.
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