GBP/USD stays defensive above 1.2400 as BoE hawks hesitate, focus on Fed Chair Powell

• GBP/USD consolidates weekly losses after refreshing multi-day low.
• BoE Officials struggle to defend hawkish plays amid challenges to economy.
• Upbeat US data, increasing bets for Fed rate hike favor US Dollar amid hopes of no US default.
• Challenges to previous optimism, anxiety ahead of top-tier catalysts allow Cable pair to lick its wounds.

GBP/USD licks its wounds near 1.2410 as it benefits from the market’s consolidation ahead of the key events. That said, the Pound Sterling dropped to the lowest levels in three weeks the previous day amid broad US Dollar strength. Also weighing on the Cable pair was the Bank of England (BoE) Officials’ inability to defend the hawkish moves amid fears of tighter monetary policy’s negative economic impacts.

On Thursday, top-tier BoE officials faced questions by the UK parliament's Treasury Select Committee (TSC) about the central bank's sales of bonds bought under its quantitative easing programme. Among them were BoE Governor Andrew Bailey, Deputy Governor Dave Ramsden and Deputy Governor Ben Broadbent. If we closely examine their statements, all of them defend Quantitative Tightening (QT) but fail to suggest more moves in that direction while fearing economic consequences.

On the other hand, the US Dollar Index (DXY) rallied to the highest levels since early March after the market’s bets on the US Federal Reserve (Fed) rate cut in 2023 dropped while the odds of a 0.25% rate hike in June increased amid firmer US data and hawkish Fed talks. However, the latest challenges for the US debt ceiling deal and mixed concerns about the US-China ties seem to prod the greenback buyers and allow the pair to consolidate the weekly losses amid a sluggish session.

Among the key challenges for the DXY are fears of the US default and the Sino-American tension. Reuters came out with a warning note while citing the powerful group of US decision-makers, namely the House Freedom Caucus. “The small but powerful Republican faction warned this week that they could try to block any agreement to raise the $31.4 trillion debt ceiling from passing the House of Representatives, if the accord does not contain ‘robust’ federal spending cuts,” said the news. Elsewhere, the US Trade Representative's (USTR) office announced on Thursday that The US and Taiwan reached an agreement on the first part of their ‘21st Century’ trade initiative, covering customs and border procedures, regulatory practices, and small business. This comes ahead of planned meetings between China's Commerce Minister Wang Wentao and USTR Tai and US Commerce Secretary Gina Raimondo, which in turn can propel the Sino-American tension and prods the US Dollar advances.

Amid these plays, S&P 500 Futures struggle to trace Wall Street’s gains while the US Treasury bond yields remain sidelined after rising to a multi-day high the previous day.

Moving on, Federal Reserve (Fed) Chairman Jerome Powell’s speech and US debt ceiling negotiations will be crucial as Fed hawks are back to the table while US President Joe Biden said to have the decision to avoid a default by Sunday. Also important will be China’s reaction to the US-Taiwan trade deal.

Technical analysis

Unless providing a daily close beyond the six-week-old previous support line, close to 1.2425 by the press time, even the intraday buyers of the GBP/USD pair are off the table.