GBP/USD rebounds from 1.2400 as anxiety among investors for Fed policy stance deepens

• GBP/USD has shown a recovery move from 1.2400 as the USD index has fallen into a volatility contraction phase.
• Market mood has turned cautious amid an absence of potential triggers this week.
• UK economy is facing the issue of labor shortages after the Brexit event and early retirement taken by several individuals.

The GBP/USD pair has found a decent buying interest near the round-level support of 1.2400 in the London session. The Cable has shown recovery due to a decline in the US Dollar Index (DXY). The USD Index has faced selling pressure while attempting to reclaim Tuesday’s high around 104.40.

S&P500 futures have extended losses in Europe amid anxiety among investors about the interest rate decision by the Federal Reserve (Fed) in its June policy meeting. Market mood has turned cautious amid an absence of potential triggers this week.

On a broader note, the USD index is showing signs of volatility contraction as the economic calendar has nothing much to offer this week. Therefore, second-tier events could produce some decisive moves ahead.

On Wednesday, United States Goods and Services Trade balance data (April) will remain in focus. The economic data is expected to show a wider deficit of $75.2B vs. the prior deficit of $64.2B. This could impact the US Dollar ahead.

On the Pound Sterling front, stubborn United Kingdom inflation is consistently forcing the need for more interest rate hikes. The Bank of England (BoE) has already hiked interest rates consecutively 12 times to 4.50%. Inflation in the UK region is significantly higher than in the United States and Eurozone due to the tight labor market and higher food inflation.

The UK economy is facing the issue of labor shortages after the Brexit event and early retirement taken by several individuals due to Covid-19.

In June’s monetary policy, BoE Governor Andrew Bailey is expected to raise interest rates further to augment UK PM Rishi Sunak’s promise of halving inflation by year-end.