- GBP/USD has overstepped the critical resistance of 1.2100 amid risk-on impulse.
- A sheer decline in economic activities in the United States has triggered recession fears.
- BOE Mann has warned that an energy price cap-inspired fall in inflation could trigger inflation in other productions.
The GBP/USD pair has surpassed the round-level resistance of 1.2100 in the Tokyo session. The Cable is expected to shift its auction profile above 1.2100 amid a cheerful market mood. The US Dollar faced immense pressure on Friday after the release of weaker-than-anticipated Average Hourly Earnings.
S&P500 futures have extended their upside journey after a stellar buying on Friday, portraying more stream left in bulls. Also, the higher risk appetite of the market participants is supporting more weakness in the US Dollar Index (DXY). The USD Index is hovering below 103.50, indicating that the upside has been capped as the risk-aversion theme has lost traction. The 10-year US Treasury yields have dropped to nearly 3.56%.
After recording the lowest United States Manufacturing PMI figure (Dec) at 48.4 last week since May 2000, as reported by the Institute of Supply Management (ISM), Services PMI has also dropped significantly. The Services PMI plunged significantly to 49.6 vs. the projection of 55.0. Also, New Orders Index that displays forward demand dropped massively to 45.2 vs. the expectations of 58.5. This has triggered a risk of recession in the United States.
Considering the recent decline in potential economic data, Chicago Federal Reserve (Fed) President Evans quoted in Wall Street Journal (WSJ), “It was possible the economic data would support raising the policy rate by 25 basis points at the Fed's next gathering”, as reported by Reuters.
On the United Kingdom front, a price cap on energy prices to support households has mechanically reduced inflation but is impacting the prices of other products. Bank of England (BOE) policymaker Catherine Mann cited, "The cap on energy prices allows for a restructuring of spending in the rest of the consumption basket and thus potentially higher inflation in the case of all other products,” Mann said. “It’s something we watch carefully”, as reported by Bloomberg.
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