GBPUSD recedes and consolidates around1.2230 on mixed UK data, strong US Dollar

  • GBP/USD is set to finish the week with gains of around 0.40%.
  • Federal Reserve officials remained committed to curbing inflation to its 2% target.
  • Mixed economic data in the UK, a headwind for the GBP/USD, despite expectations for a Fed rate cut in 2023.

GBP/USD finished the week on a lower note after it reached 1.234, the high of the week, but retreated as sentiment dampened. On Friday, the GBP/USD is trading at 1.2228, retracing 0.47% at the time of typing.

Fed policymakers ready to combat inflation, UK data paints a gloomy economic scenario

The US equities market prepares to end the week in positive territory despite a renewed round of turbulence. Deutsche Bank stock fell sharply on fears that the German bank could default, as shown by the Credit Default Swaps (CDS) rising 220 basis points. Although it hurt Wall Street as the session opened, investors shrugged off those fears, as they speculated the Federal Reserve (Fed) would cut rates in 2023.

Federal Reserve officials crossed wires in the session. St. Louis Fed President James Bullard noted that rates need to get to the 5.50%-5.75% range, which would require an additional 75 bps of rate hikes after the Fed’s raised rates to the 4.75%-5.00%. Earlier comments from his colleague Raphael Bostic from the Atlanta Fed said that March’s decision was not easy. “There was a lot of debate. This wasn’t a straightforward decision.”

Richmond Fed President Thomas Barkin commented that the situation in the banking sector “felt very stable by the time we got there (to the meeting). So the conditions were right to do monetary policy the way we want to do monetary policy.”

On the data front, the US economic calendar featured the S&P Global PMI improved in March, exceeding expectations and the prior’s month data. The Manufacturing Index stood in the contractionary territory. At the same time, Durable Good Orders plunged by 1% but improved compared to the last month’s reading.

The UK economic docket featured Retail Sales, which beat estimates on an annual and monthly basis, while the S&P Global PMIs were worse than foreseen. The Manufacturing PMI failed to improve, while the Services and Composite PMIs, ticked slightly down.

Catheryn Mann, a member of the Bank of England, said she voted for a 25 bps rate hike compared to a larger one because she saw signs that inflation expectations are falling.

GBP/USD Technical analysis

Given the backdrop, the GBP/USD extended its losses, boosted by a stronger US Dollar. Even though the GBP/USD hit a daily low at 1.2190, buyers could hurdle the 1.2200 mark. It should be said that failure to achieve a daily close above 1.2300 could exacerbate a fall below 1.2200, which could extend to the 20-day EMA around 1.2135. Once cleared, the 200-day EMA would be up for grabs. On the flip side, buyers reclaiming 1.2300 can pave the way to the weekly high of 1.2343.

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