GBP/USD trades with modest losses below mid-1.2400s, downside potential seems limited


  • GBP/USD retreats further from the weekly high set on Wednesday, albeit lacks follow-through.
  • The stronger UK CPI lifts bets for a 25 bps BoE rate hike in May and lends support to the GBP.
  • Bets for more Fed rate hikes underpin the USD and should act as a headwind for the major.

The GBP/USD pair comes under some selling pressure on Thursday and retreats further from the weekly high, around the 1.2470-1.2475 area touched the previous day. The pair remains on the defensive through the early part of the European session and is currently placed near the daily low, around the 1.2420 region.

A combination of factors continues to act as a tailwind for the US Dollar (USD), which, in turn, is seen exerting some downward pressure on the GBP/USD pair. The prospects for further policy tightening by the Federal Reserve (Fed), along with a weaker rise sentiment, lend some support to the safe-haven Greenback. That said, rising bets for an additional interest rate hike by the Bank of England (BoE) might hold back bearish traders from placing aggressive bets and help limit losses for the major.

The markets now seem convinced that the US central bank will lift rates by 25 bps at the next policy meeting in May and have been pricing in a small chance of another rate hike in June. The bets were reaffirmed by the recent hawkish comments by several Fed officials. Moreover, the incoming macro data from the US pointed to a resilient economy and fueled concerns that the Fed may have more work to do to tame stubbornly high inflation in the US amid easing fears of a full-blown banking crisis.

This further fuel worries about the economic headwinds stemming from rising borrowing costs and tempers investors' appetite for riskier assets., which is evident from a generally weaker tone around the equity markets. The anti-risk lends additional support to the safe-haven Greenback and weighs on the GBP/USD pair. That said, the stronger UK inflation figures released on Wednesday should keep pressure on the BoE to raise interest rates further and act as a tailwind for spot prices.

The aforementioned mixed fundamental backdrop makes it prudent to wait for strong follow-through selling before placing aggressive bearish bets around the GBP/USD pair in the absence of any relevant macro data from the UK. The US economic docket features the release of the usual Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index and Existing Home Sales. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus.

Technical levels to watch

GBP/USD

Overview
Today last price 1.2438
Today Daily Change -0.0002
Today Daily Change % -0.02
Today daily open 1.244
 
Trends
Daily SMA20 1.2394
Daily SMA50 1.2195
Daily SMA100 1.2194
Daily SMA200 1.1921
 
Levels
Previous Daily High 1.2474
Previous Daily Low 1.2392
Previous Weekly High 1.2546
Previous Weekly Low 1.2344
Previous Monthly High 1.2424
Previous Monthly Low 1.1803
Daily Fibonacci 38.2% 1.2443
Daily Fibonacci 61.8% 1.2424
Daily Pivot Point S1 1.2397
Daily Pivot Point S2 1.2354
Daily Pivot Point S3 1.2315
Daily Pivot Point R1 1.2478
Daily Pivot Point R2 1.2517
Daily Pivot Point R3 1.256

 

 

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