GBP/USD Under Selling Pressure Due to Expected Fed Tightening

Apr 12, 2023

The GBP/USD currency pair experienced some selling pressure after a brief surge to the 1.2445 level during intraday trading, leading to a partial reversal of the previous day's significant upward movement. The spot prices have now fallen to a new daily low in the early part of the European trading session, with bears anticipating a sustained break below the significant round-number level of 1.2400 before making any further trades.

The possibility of additional policy tightening by the Federal Reserve (Fed) has served as a floor for US Treasury bond yields and has acted as a tailwind for the US Dollar (USD), which, in turn, is placing downward pressure on the GBP/USD pair. Market participants have been pricing in a higher likelihood of another 25 bps rate hike at the upcoming FOMC meeting in May. The bets were reinforced by hawkish comments made overnight by Philadelphia Fed Bank President Patrick Harker, who indicated that the US central bank is fully committed to bringing inflation back down to the 2% target.

Our approach is centered on a retest area of 1.2400, where we anticipate a pullback, allowing us to observe whether the price will continue to move in the direction of the main trend.