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GBP/USD aims for momentum above 1.1360 with buoyant market sentiment; UK CPI is in focus
GBP/USD must surpass the 1.1360 barrier for an uptrend to gain traction under an optimistic market sentiment. In the absence of compelling evidence of an inflation slowdown, the Fed is not prepared to suspend its rate hikes. Loss of confidence in British Prime Minister Liz Truss has exacerbated the country's political instability.
During the Tokyo session, the GBP/USD pair is encountering barriers around the immediate barrier of 1.1360. Amid rising market participants' risk appetite, the obstacles surrounding 1.1360 appear to be weakening. S&P500 futures have extended their gains in the Tokyo session, following two consecutive positive trading sessions. The pound bulls will gain strength after clearing the aforementioned obstacle.
Meanwhile, the US dollar index (DXY) is performing poorly, hovering around 112.00. Due to a drop in the desirability of safe-haven assets, the value of the asset could decrease further. In contrast, US bond returns remain robust despite the Fed's increased hawkishness. At the time of writing, the 10-year US Treasury yields have extended their advances beyond 4.01%.
According to the CME FedWatch tool, the probability of a fourth consecutive 75 basis point (bps) rate increase announcement is approximately 96%.
Reuters reported that in reaction to rising inflationary pressures, the president of the Minneapolis Fed Bank, Neel Kashkari, declared on Tuesday, "Until I see some strong evidence that core inflation has at least peaked, I am not prepared to proclaim a stop in rate hikes."
Continuous Fed rate increases have had little effect on the inflation rate. The headline Consumer Price Index (CPI) has decreased due to lower gasoline costs, although the core CPI is well-anchored due to rising service sector pricing.
On the British front, the Bank of England (BOE) stated on November 1 that its bond-selling program will become part of the Asset Purchase Facility (APF). This will diminish market liquidity.
The level of political instability in the United Kingdom has reached an all-time high, as authorities have lost faith in Prime Minister Liz Truss. 55% of Tory members surveyed by YouGov would vote for Rishi Sunak, who lost to Ms. Truss, if they could vote again, while only 25% would vote for Ms. Truss.
Wednesday's release of the United Kingdom's inflation data will be crucial for future direction. According to the forecasts, the headline and core rates of inflation may each increase by 10 basis points to 10% and 6.4%, respectively. A return to double-digit inflation could create additional obstacles for the British economy.
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