GBP/USD suffers altitude sickness near 1.2150, Brexit news, BOE in focus

• GBP/USD fades post-Fed rebound amid Brexit woes, pre-BOE anxiety.
• EU’s legal action over UK’s Brexit move rejuvenates the old and slow play.
• Fed’s 75 bp move pushes BOE to announce something more than 0.25% rate hike.
• Second-tier US data, risk catalysts eyed for extra directions.

GBP/USD remains mildly offered around 1.2160, despite the latest bounce off intraday lows, as the cable traders brace for the Bank of England’s (BOE) monetary policy meeting during early Thursday. The cable pair’s latest losses could also be linked to the US dollar rebound and sluggish Treasury yields, not to forget Brexit woes.

UK’s decision to unilaterally alter the Northern Ireland Protocol (NIP) witnessed legal retaliation from the European Union (EU), as expected. In this regard, European Commission vice-president Maros Sefcovic said the UK’s move had “no legal or political justification”, per The Independent. On the same line were comments from European Central Bank President Christine Lagarde who said, "Reneging on a rule of law that has been established by mutual agreement, without any duress, without proper consideration is a very big issue, and one that we should all be concerned about for the future," per Reuters.

Additionally weighing on the GBP/USD could be the chatters surrounding the UK’s food inflation to 15% as the BOE’s 0.25% rate hike seems less effective for such a heavy price increase. “Food price inflation in Britain is likely to peak at up to 15% this summer and high levels will persist into 2023, industry researcher the Institute of Grocery Distribution (IGD) said on Thursday,” per Reuters.

On the other hand, the US Dollar Index (DXY) regains the 105.00 level after reversing from a 20-year high the previous day despite the Fed’s 0.75% rate hike. On Wednesday, the US Federal Reserve (Fed) announced the biggest interest rate hike since 1994 to battle inflation fears. The US central bank also revised inflation forecasts for this year and the next while cutting down the inflation expectations. Further, the policymakers also signaled either a 50 bp or 75 bp rate hike in the next meeting. However, the Fed’s rejection of the odds of a 100 bp rate increase and Chairman Jerome Powell’s measured comments seem to have drowned the Treasury yields and the US dollar afterward.

Also previously helped the GBP/USD buyers were the downside US data, namely Retail Sales and NY Empire State Manufacturing gauge. That said, US Retail Sales marked a contraction of 0.3% MoM versus an anticipated growth of 0.2% and downwardly revised 0.7% in previous readings. Also, the NY Empire State Manufacturing Index dropped to -1.2 compared to 3.0 market consensus and -11.6 prior.

Looking forward, further consolidation of the post-Fed moves could weigh on the GBP/USD prices as the US Treasury yields bounce off intraday low to 3.35% by the press time.

However, major attention will be given to the BOE’s likely actions. It’s worth noting that the “Old Lady” is expected to announce 0.25% rate hike but may not be able to please the GBP/USD buyers.

Also read: BOE Preview: Why GBP/USD set to suffer even in response to a 50 bps hike, a lose-lose event

Technical analysis

GBP/USD pair’s failure to cross the 1.2200 immediate hurdle on a daily closing basis keeps the sellers hopeful of witnessing a fresh 2022 low, currently around 1.1933. However, the 1.2000 psychological magnet may offer an intermediate halt during the fall.