GBP/USD fails to hold above 1.3150 after hitting wall of resistance, still supported as risk appetite recovers

• GBP/USD attempted a recovery back towards 1.3200 on Wednesday but was thwarted by resistance in the 1.3160-70 area.
• The pair has since dropped back under the 1.3150 mark, though still trades with reasonable on-the-day gains.
• A recovery in broader risk appetite and a pullback from recent highs in major commodity prices is providing tailwinds.

Having flirted with a break below the 1.3100 level over the past three sessions, GBP/USD is staging a modest rebound this Wednesday. Sterling is getting a lift as global equity markets stage a tentative rebound from lows and profit-taking sees major commodity prices pull back from recent highs, as investors await next steps in the Russo-Ukraine conflict. With the US having banned Russian energy imports and UK having announced a plan to phase them out, focus has shifted to the potential Russian response and nerves regarding this is likely to prevent a more meaningful rebound for the likes of cable.

GBP/USD at one point rallied as high as the 1.3180 mark, but struggling to extend gains as a result of a solid wall of resistance in the 1.3160-70 area. The pair has subsequently dropped back under the 1.3150 mark where it trades about 0.4% higher on the day. The sharp pullback in commodities prices, particularly energy (the Bloomberg Energy Index is down nearly 5% on Wednesday) is a welcome development, but still leaves prices at highly elevated levels. Consumers globally continue to face an imminent and large squeeze on their finances as a result of inflation and stagflation concerns in the UK are particularly elevated with a tax hike also coming next month.

Summing up these concerns aptly was a report released on Wednesday from the UK’s YouGov that showed UK consumer confidence falling in February and assessment of household finances hitting their weakest level since the survey began. Traders are likely to continue to favour a break lower towards 1.30 and below as opposed to a recovery back to late-February/early March ranges in the 1.33-1.34 area. Upcoming US data in the form of January JOLTs Job Openings at 1500GMT on Wednesday and January Consumer Price Inflation on Thursday ought to solidify expectations for near-term Fed tightening, thus adding to the reasons why FX investors might want to remain long dollars right now.