GBP/USD looks to retest two-year low around 1.2100 on Fed/BOE chatters ahead of UK jobs data

• GBP/USD fades the bounce off multi-day low as hawkish Fed expectations battle doubts over BOE’s capacity.
• Fears of UK’s recession, Brexit and the political turmoil also exert downside pressure on the cable.
• UK jobs report is likely to show sign of resilience and can trigger corrective pullback, US PPI eyed as well.

GBP/USD fails to extend the early Asian session rebound from a two-year low as it eases back to 1.2150 on Tuesday. The cable pair’s latest weakness could be linked to the growing fears surrounding the UK’s economic hardships, as well as the Bank of England’s (BOE) ability to tame inflation and avoid recession, ahead of the monthly employment data from Britain.

A second monthly fall in the UK’s Gross Domestic Product (GDP) bolstered expectations of an economic slowdown in Britain. The economic pessimism takes clues from the likely negative impacts of Brexit, as well as hardships connected to the Russia-Ukraine crisis and China’s covid woes.

Elsewhere, doubts over the Bank of England’s (BOE) capacity to avoid recession and aptly tame the inflation woes also exert downside pressure on the GBP/USD prices. However, the “Old Lady” is likely to announce another rate hike during Thursday’s meeting. “With UK annual inflation surging to 9% in April, the disappointing GDP print does not change the need for further BoE rate rises. We expect the MPC will raise rates by 25bps to 1.25% when it meets on Thursday,” said analysts at the Australia and New Zealand Banking Group (ANZ).

On the other hand, Friday’s US inflation data propelled calls for faster/heavier rate increases and spread the market fears as hawkish central bank actions tease recession woes. The same pushed multiple analysts ranging from JP Morgan to Goldman Sachs to revise their Fed forecasts and include expectations of a 75 bp rate hike in June and July. “Our Fed forecast is being revised to include 75bps hikes in June and July,” said Goldman Sachs in its latest Fed forecasts per Reuters.

It should be observed that Beijing covid cases hit a three-week high, per Bloomberg, which in turn propels the virus woes and the resulted economic fears that can weigh on the GBP/USD prices even if the Global Times (GT) raised expectations of easing US-China tension. “Senior Chinese diplomat Yang Jiechi held talks with US National Security Advisor Sullivan in Luxembourg. The two agreed to reduce misunderstanding and miscalculation, and properly manage differences, saying it is necessary & beneficial to keep communication channels open,” said GT.

Moving on, the UK’s headline Claimant Count Change is likely to improve from -56.9K to -42.5K in April. Also suggesting firmer jobs situation in Britain is the expected decline in the Unemployment Rate to 3.6% from 3.7% prior during the three months to May.

Following the UK data, the US Producer Price Index (PPI) for Apri, expected 10.9% YoY versus 11.0% prior, could also entertain traders. However, major attention remains on the BOE versus Fed moves.

Technical analysis

GBP/USD remains vulnerable to slump towards the 1.2000 psychological magnet unless closing beyond the previous yearly low surrounding 1.2155.