GBP/USD aims to shift business above 1.1500 as market mood soars, Fed/BOE policy buzz

• GBP/USD is eying more upside above 1.1517 as the market mood has turned cheerful.
• The DXY has refreshed the day’s low at 111.28 despite soaring hawkish Fed bets.
• A collective effort of tight monetary policy and fiscal will weigh on price growth in the UK.

The GBP/USD pair is aiming to extend its recovery above the immediate hurdle of 1.1517 after a sheer rebound from 1.1460 in the early European session. The cable has been underpinned as the risk-on impulse has rebounded firmly. As uncertainty ahead of Federal Reserve (Fed) policy is fading away, investors are parking their funds in risk-sensitive assets.

S&P500 futures have recovered majorly after a bearish Monday. The 10-year US Treasury yields have dropped to 4.02%. Meanwhile, the US dollar index (DXY) is looking to extend its losses below the intraday low at 111.28.

Pound bulls are gearing up as odds of a 75 basis point (bps) rate hike by the Bank of England (BOE) has escalated. In order to tame the double-digit figure inflation, BOE Governor Andrew Bailey has no other option than to tighten policy with a bigger rate hike. The extent of the 75 bps rate will be the largest in the current rate escalating cycle.

UK’s novel leadership is putting blood and sweat to curb the debt crisis. In an article written by Financial Times on Monday, Treasury insiders said that UK PM Rishi Sunak and Chancellor Jeremy Hunt had agreed that “those with the broadest shoulders should be asked to bear the greatest burden”, and everybody’s taxes would go up.

They further added that the administration believes that the fiscal hole in the economy led by helicopter money injected into the economy to fight against Covid-19 and to support households against energy bills is needed to be filled. And, spending cuts seldom cannot fulfill the fiscal hole.

On the US front, the Fed is expected to continue its 75 bps rate hike spell for the fourth time and will push rates to 3.75-4%, a step further in achieving the agenda of price stability.  On Tuesday, investors’ focus will remain on ISM Manufacturing PMI data, which is seen lower at 50.0 vs. the prior release of 50.9.