GBP/USD rebounds from 1.2000 as DXY plunges, Fed policy eyed

• GBP/USD is recovering after a minor correction to near 1.2000 amid a positive market mood.
• The DXY has slipped sharply to near 105.00 ahead of the Fed’s policy.
• The higher UK jobless rate has left less room for the BOE to elevate its interest rates.

The GBP/USD pair has attracted some significant bids to near 1.2000 after witnessing a mild correction from 1.2041. A sharp rebound in the risk-on impulse has underpinned the pound bulls against the greenback. The cable is expected to recapture its day’s high on soaring market mood ahead of the monetary policy by the Federal Reserve (Fed).

The US dollar index (DXY) has extended its intraday losses after slipping below 105.16. A firmer downside move has drifted the DXY lower to near 105.00, at the press time, which is a crucial hurdle for the DXY bears. An extreme sell-off in the DXY has been witnessed as investors have ignored the uncertainty over the Fed’s policy.

A rate hike by at least 50 basis points (bps) is imminent amid soaring price pressures. Also, the odds of a rate hike by 75 bps have bolstered. As per the CME Fedwatch tool, the chances of announcing a rate hike of 75 basis points (bps) are 99%. The market participants have accepted the fact and have liquidated their longs from the DXY.

On the pound front, the Bank of England (BOE) will dictate its monetary policy on Friday. A rate hike by 25 bps is expected as the higher Unemployment Rate has left less room for the BOE to stretch the interest rates. The jobless rate in the UK economy landed at 3.8%, higher than the expectations of 3.6% and the prior print of 3.7%.