GBP/USD balances in a 1.2560-1.2590 range, sees downside as DXY advances

• GBP/USD is consolidating in a 30-pips range and is distributing inventory for further downside.
• As per the CME Fedwatch tool, two consecutive 50 bps rate hikes are expected from the Fed.
• The sterling has been hammered ahead of the monetary policy meeting by the BOE next week.

The GBP/USD pair is displaying back and forth moves in a narrow range of 1.2560-1.2591 in the Asian session. The cable is expecting a fresh bearish impulsive wave going forward as the US dollar index (DXY) is heading towards its five-year high at 102.99.

The DXY is performing stronger against sterling on rising odds of an interest rate hike by the Federal Reserve (Fed) in May. An interest rate elevation by 50 basis points (bps) looks certain now in order to tame the soaring inflation. Along with that, the odds of hawkish guidance for the remaining year have strengthened as per the CME Fedwatch tool, which sees interest rate hikes by a half a percentage point at each of the next two meetings by the Fed. Meanwhile, the underperformance from the US Durable Goods Orders failed to impact the DXY’s rally. The US Census Bureau on Tuesday reported the monthly Durable Goods Orders at 0.8% lower than the market consensus of 1%.

The pound seems vulnerable ahead of the interest rate decision by the Bank of England (BOE) next week. A rate hike by 25 bps is expected from the BOE however, the BOE is open to aggressive hawkish stance due to ramping-up inflation in the UK. A tight labor market and higher Consumer Price Index (CPI) numbers are advocating a jumbo rate hike from BOE.