February 4, 2023

GBP/USD seeks stability above 1.2400 for a fresh upside, spotlight is on US GDP

  • GBP/USD is looking to shift its auction above 1.2400 for a fresh upside, supported by the risk-on impulse.
  • The US economic data will be on the radar for further guidance.
  • A lower UK PPI might trim inflation projections and will delight the BoE.

The GBP/USD pair is aiming to shift its auction profile above the critical resistance of 1.2410 in the Tokyo session. The cable is struggling to extend its recovery, however, the upside bias is solid as investors have underpinned the risk aversion theme. Market sentiment is highly positive as the S&P500 futures are displaying moderate gains in Asia.

S&P500 futures are not losing their foot despite mixed corporate earnings. Soaring expectations of a smaller interest rate hike by the Federal Reserve (Fed) in its upcoming monetary policy meeting, scheduled for February is offsetting the uncertainty about mixed earnings. Also, the higher risk appetite of the market participants has improved demand for US government bonds. The 10-year US treasury yields have dropped to 3.44%.

The US Dollar Index (DXY) is hovering around a seven-month at 101.10 and is expected to remain on the tenterhooks as investors await the United States Gross Domestic Product (GDP) (Q4) data for further cues. Considering the fact that Fed chair Jerome Powell has tightened the monetary policy on an extreme note in CY2022, the street is expecting a contraction in the scale of economic activities. As per the projections, the economic data is seen at 2.6% lower than the former release of 3.2%.

Apart from that, the catalyst that will impact the US Dollar Index (DXY) is the preliminary Core Personal Consumption Expenditure (PCE) for the fourth quarter of CY2022. The economic data is expected to escalate to 5.3% from the prior release of 4.7%. Also, the Durable Goods Orders data will be keenly watched, which is seen at 2.5% vs. -2.1% in the prior release.

On the United Kingdom front, a sheer decline in core Producer Price Index (PPI) Output data has trimmed inflation projections. Producers have increased prices of goods and services at factory gates by 12.4% lower than the consensus of 13.9% and the prior figure of 13.0%. This is going to delight the Bank of England (BoE), which is putting blood and sweat in compressing the roaring inflation.

 

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