GBP/USD attempts to cross 1.2050, downside looks likely amid US-China tensions

• GBP/USD has picked up demand after dropping to near 1.2050, however, the downside bias is still solid.
• Escalating geopolitical tensions over the US-China balloon event have trimmed the appeal for risk-perceived assets.
• The Fed is expected to announce two more hikes this year.

The GBP/USD pair has attempted to extend its rebound move above the critical resistance of 1.2050 in the Tokyo session. The Cable gauged an intermediate cushion around 1.2000 amid subdued performance by the US Dollar Index (DXY).

It would be early to consider the short-term pause in Cable’s vertical downside as a reversal as the risk profile is extremely negative amid US-China trade tensions. After US President Joe Biden ordered to shoot down the Chinese spy balloon, tensions between the two giants heated up as Chinese officials warned the US not to aggravate the tense situation.

Meanwhile, the postponement of US Secretary of State Antony Blinken’s visit to Beijing after the balloon event, citing that “nothing had been planned” by either side has signaled signs of disrespect for the Chinese authorities.

Losses in the S&P500 futures are escalating amid deepening US-China tensions, portraying the miserable risk appetite of the market participants. The US Dollar Index (DXY) has shown a marginal correction to near 102.67, however, the upside is still favored.

Considering the jump in the number of payrolls added by the United States economy in January, the street is expecting a continuation of interest rate hikes by the Federal Reserve (Fed). Goldman Sachs Research team said in its client note that it expects the Fed to hike interest rates by 25 basis points (bps) consecutively in March and May. This way the central bank will reach the terminal rate of 5.00-5.25%.

On the United Kingdom front, investors are worried about the fact that monetary policy has done little in slowing down inflationary pressures, however, the impact is considerably visible on the economic activities.

Meanwhile, Bank of England (BoE) Chief Economist Huw Pill told Times Radio on Friday that it's important for the BoE to not do "too much" on monetary policy, reported Reuters. He further added that we have done a lot with monetary policy already." And "We have a reasonably high degree of confidence we will see inflation fall this year."