GBP/USD aims to overstep 1.2000 as DXY sees more pain, Fed policy in focus

• GBP/USD is eying to surpass 1.2000 as DXY turns weaker on expectations of a slowdown in the US.
• The Fed is likely to announce a consecutive rate hike by 75 bps this week.
• Lower UK Retail Sales data may result in slippage in sterling.

The GBP/USD pair has recovered half of its intraday losses and is aiming to recapture the psychological resistance of 1.2000. The cable has shifted into a correction phase after hitting a high of 1.2064 on Friday. On a broader note, the asset is displaying topsy-turvy moves as the US dollar index (DXY) has displayed a sideways movement in the past week.

Over the past few months, the upside march in the DXY was backed by expectations of higher interest rates and upbeat economic data. The option of a 1% rate hike by the Federal Reserve (Fed) is out of the picture for now. However, investors are still placing bets on 75 basis points (bps) rate hikes on Wednesday.

While the US economic data is expecting a bumpy ride. Wall Street is reporting soft earnings on a broader note. Apart from that, Google has halted its recruitment process and Ford is looking to lay off 8k employees. This might result in a slump in the employment generation process and eventually in the overall labor market, which may not be firm enough to support the Fed for rate hikes unhesitatingly.

On the UK front, the pound bulls weakened after the release of the downbeat Retail Sales data. The economic data landed at -5.8% lower than the consensus of -5.3% and the prior release of 4.7%. It is worth noting that soaring energy bills are already pushing Retail Sales higher. Runaway inflation should have elevated the estimate for Retail Sales. However, lower consensus indicates that the overall demand is so much low that even the price pressures are unable to lift them above their prior release.