GBP/USD surrenders gains as US promises expansion of financial support to mid-size banks

• GBP/USD is struggling to extend its recovery further as USD Index has shown signs of recovery.
• The promise of expansion of the emergency lending facility to small US banks has improved US Dollar’s appeal.
• Robust UK retail demand cements the continuation of the policy-tightening spell by the BoE.

The GBP/USD pair has surrendered its morning gains and has slipped to near 1.2230 in the Asian session. The Cable witnessed the heat after failing to climb above the immediate resistance of 1.2250 as the US Dollar Index (DXY) has shown some recovery after a gradual correction.

The USD Index has attempted a recovery move from 103.00 as the promise of providing more financial support to mid-size banks by the United States administration has infused confidence among market participants. Bloomberg reported that US authorities are considering an expansion of the emergency lending facility that would offer banks more support, and will provide the First Republic Bank more time to shore up its balance sheet.

S&P500 futures have loaded up some decent gains after a positive week on hopes that emergency lending support to mid-size banks will provide them room for more business. Also, more financial support to small US banks after declining deposits post-banking fiasco would help them to restore the confidence of households.

Meanwhile, contrary decisions from Federal Reserve (Fed) policymakers on the US recession are impacting the decision-making. Minneapolis Fed president Neel Kashkari cited on Sunday, “Recent stress in the banking sector and the possibility of a follow-on credit crunch brings the US closer to recession.

However, Atlanta Fed President Raphael Bostic told NPR on Friday that there are clear signs that the banking system is safe and resilient. And Fed Bostic is "Not expecting the economy to fall into recession."

On the United Kingdom front, Pound Sterling remained in action on Friday after robust Retail Sales data. Monthly Retail Sales (Feb) data accelerated firmly by 1.2%, higher than the consensus of 0.2% and the former release of 0.9%. UK’s annual Retail Sales data contracted by 3.5% while the street was anticipating a contraction of 4.7%. This indicates that the rate-hiking spell by the Bank of England (BoE) will stay for a longer period.