- GBP/USD regains some positive traction on Tuesday and draws support from fresh USD selling.
- The uncertainty over the Fed’s rate hike path and a positive risk tone undermines the Greenback.
- Traders now look to the UK jobs data and the crucial US CPI report for some meaningful impetus.
The GBP/USD pair attracts some buying during the Asian session on Tuesday and reverses a part of the previous day's sharp retracement slide from the 1.2600 mark, or a one-month peak. Spot prices currently trade just above the 1.2500 psychological mark as market participants now look forward to the UK monthly employment details and the latest US consumer inflation figures for a fresh impetus.
In the meantime, expectations that the Federal Reserve (Fed) will more likely skip a rate hike this month continue to weigh on the US Dollar (USD) and lends some support to the GBP/USD pair. It is worth recalling that a slew of FOMC members recently reaffirmed market expectations for an imminent pause in the US central bank's year-long policy tightening cycle. In contrast, the Bank of England (BoE) is expected to be far more aggressive in policy tightening to contain stubbornly high inflation. Moreover, market participants see a greater chance that rates in the UK will peak at 5.5% later this year.
The downside for the USD, however, seems cushioned in the wake of rising bets for another 25 bps lift-off at the July FOMC meeting. Surprise rate hikes by other major central banks last week - the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) - suggested that the fight against inflation is not over yet and support prospects for additional rate hikes by the Fed. Hence, the market focus will remain on the crucial US CPI report, due later during the North American session. The data will influence the USD ahead of the June FOMC policy decision, scheduled to be announced on Wednesday.
Investors on Tuesday will further take cues from the UK jobs data, which is expected to show that the number of people claiming unemployment-related benefits fell by 9.6K in May. Furthermore, the ILO Unemployment Rate is seen ticking higher to 4% during the three months to April, while Average Hourly Earnings likely accelerated during the reported period, pointing to growing signs of persistence in underlying price pressures. This might be enough to provide a fresh lift to the British Pound and assist the GBP/USD pair to capitalize on its modest intraday gains ahead of the key data/event risks.
Technical levels to watch
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